Is Half a Cure Better Than None?
At first glance, a new health-insurance program in New York State would seem to be just the remedy that small employers need: a low-cost, no-frills plan aimed at bringing basic coverage to uninsured workers.
Called Healthy New York, it debuted Jan. 1 and offers premiums roughly 25% below those of HMO plans open to individuals in the Empire State. Moreover, it's tailored specifically for the smallest of small businesses: companies with 50 or fewer eligible employees -- those least likely to offer coverage.
Sounds like a winner, right? Think again. Instead of cheers, Healthy New York is drawing jeers from quite a few in the very group it is intended to help: small-business owners. That's because eligibility is limited to those companies that haven't offered health insurance over the past 12 months. The rest -- the ones that have provided coverage in order to compete in a tight labor market -- need not apply.
"It rewards employers who were not responsible enough to insure their employees up until now, and it penalizes the rest of us," complains Roger Hannay, owner of Hannay Reels, which makes industrial hose reels in the upstate town of Westerlo. Hannay, who has been offering his 150 workers health insurance through an Empire Blue Cross PPO plan, says he spent $1.1 million on the insurance in 2000. He recently decided to switch to a more restrictive HMO plan when Blue Cross notified him of a 30% increase for 2001.
His complaint about the New York pilot program -- echoed by other business owners -- illustrates just how difficult it can be to foster health-care insurance that is both affordable and politically palatable. In the minds of many entrepreneurs, memories of President Clinton's failed attempt to create universal coverage remain sharp. Business groups, along with the insurance industry, fought the plan, fearing a federal mandate would prove too costly for many employers. Yet survey after survey has shown the current system isn't working, either. Members of the National Federation of Independent Business, for example, list the lack of affordable health insurance as the top problem facing entrepreneurs today.
Despite excluding businesses that already provide health insurance, New York's strategy does seem to make sense. Sixty percent of all uninsured workers are employed by companies with fewer than 100 people on the payroll. And among businesses with three to nine workers, 40% offer no health coverage, vs. just 3% of companies with 50 to 199 workers. "You can have a major impact in coverage if you can address that population," says Paul Fronstin, a senior research associate with the Employee Benefit Research Institute, a nonpartisan think tank in Washington, D.C.
New York State officials respond that opening the plan to all small businesses -- something Hannay and others want -- would be prohibitively expensive. "Our first target was the uninsured," explains Joanna Rose, a spokeswoman for the state Insurance Dept. "We've almost tried not to defend ourselves because we don't want to belittle what a great program it is."
State officials also note that several business groups, including the NFIB's New York chapter, lobbied Governor George Pataki and legislators to fund the program and then helped craft it. "We're very hopeful that it will be a success," says Mark Alesse, director of the NFIB's Albany office. But he acknowledges that not all the group's members have been quite so enthusiastic. "On a couple of occasions," says Alesse, "I kind of got my head chopped off by members who were angry that we were saying this was a win for small business when it was clearly not a win for them in their circumstances."
SOMETHING BEATS NOTHING.
What Healthy New York offers is bare-bones protection. Visits to doctors are covered, as are hospitalizations, X-rays, and surgery. But the co-payments are often higher than with other HMOs. A doctor's visit, for instance, requires a $20 co-pay. In-patient hospital services require a $500 co-payment. And there's a $3,000 per-person annual cap on prescription drugs. The plan also excludes a number of benefits that normally must be included under New York law, including home health care, chiropractic care, outpatient substance-abuse treatment, and mental health care.
The state has also established stop-loss funds to reimburse HMOs for claims above $30,000 per member per year. As a result, Healthy New York premiums are significantly less than those of standard HMO plans available to people whose employers don't offer insurance. In Albany County, for example, an individual would pay $181.44 a month for the stripped-down version of Empire Health Choice, compared with $248.31 a month for Empire's standard HMO plan. The rates for family coverage are $544.32, and $744.94, respectively. "You get what you pay for," says Fronstin, "but that's not necessarily a bad thing here because you're still getting more than you would get if you're uninsured."
But not all small businesses currently without health insurance qualify. The program is open only to companies with 50 or fewer eligible employees, and in which 30% of the workforce receives annual wages at or below 250% of the federal poverty level -- roughly $41,000 for a family of four. Employers also are required to pay at last 50% of the annual premiums. Sole proprietors are eligible, but the same income limit applies. More information on the program is available through the state's Web site at www.ins.state.ny.us.
PAY AND PRAY.
Whether or not the program succeeds, one thing is certain: New York's experiment will be monitored by other states looking for their own solutions to spiraling health-care costs. "With 42 million people without health coverage, it should be widely watched," says Fronstin. New York officials are preparing to publicize the $219 million, 2½-year pilot program through direct mailings to business owners, along with radio and TV commercials.
In the meantime, small-biz advocates will continue to lobby for the program's expansion and/or bigger tax credits for small businesses already offering health insurance. For now, however, that's cold comfort for entrepreneurs grappling with the latest hike in premiums.
By Julie Fields in New York
Edited by Robin J. Phillips