Got You Covered

New options for small businesses

For 15 years, Maureen McQuade struggled to get health insurance for the 19 employees of her four-star Inn by the Sea in Cape Elizabeth, Me. But there were always some -- seven, in 2004 -- who couldn't afford to pay their share of the premiums.

That's why in January, McQuade jumped to sign up for DirigoChoice. Dirigo is the result of a June, 2003, state law that aims to extend health insurance to all Mainers. With Dirigo, insurance is provided by a private company but negotiated by the state. Employers must pay 60% of their workers' premiums to participate. The state subsidizes premium payments for employees who earn less than 300% of the federal poverty line.

Because Dirigo is cheaper yet more generous than McQuade's old plan, both she and her employees come out ahead. One staffer in particular: Sandra Tibbits, a seven-year housekeeper at the Inn, was diagnosed with breast cancer during a June checkup. It was the first time she had seen a doctor in years. She's now receiving chemotherapy, and her prognosis is excellent. "My employees make the Inn, and I am delighted that no one has to go without health care," says McQuade. "But I had no idea that the stakes could be so high."

Dirigo is just one of a slew of new state programs trying to help small businesses provide health insurance for their employees. It's not the first time the states have stepped in where the feds fear to tread: Many of these programs build on strategies introduced by an earlier wave of public-private partnerships that debuted in the late 1990s. Since then, the states have learned some crucial lessons. Financial incentives are now bigger, and paperwork is minimal. States are working more closely with agents and brokers who sell to small companies.

Despite successes in Maine, Arizona, and New York, some small business advocates remain skeptical that these plans will amount to anything more than stopgap measures. "These remedies may not be sustainable because they don't address the fundamental problems in the small-group marketplace," says Jamie Amaral, the national director of health research and development at the National Federation of Independent Business. Amaral worries that as employers rely more on plans like Dirigo, the programs will become overwhelmed, requiring more funding.


The resurgence of state interest has been years in the making. Early in his first term, President George W. Bush authorized the Health Insurance Flexibility & Accountability (HIFA) initiative, which lets states redirect Medicaid money to increase coverage of the uninsured. New Mexico and Louisiana are among those now using the waivers to offer premium subsidies to low-wage workers at small companies. Another important boost has come from 51 Health Resources & Services Administration grants, awarded since 1999 to help states fund research of their uninsured.

Then there are newly fattened state coffers. The major impetus for a proposal to create a small business insurance pool in Delaware, which would cost about $13 million a year, was the surprising "discovery" of hundreds of millions of dollars in tax revenue at the beginning of 2005.

Although no two state insurance programs are exactly alike, they tend to fall into a few categories. Like Maine, West Virginia negotiated with private insurers on behalf of the state's small companies and came up with the West Virginia Small Business Plan in January. Kentucky is reexamining insurance regulations, allowing the sale of stripped-down plans lacking previously mandated benefits. Community-based programs, such as those to be rolled out in several regions of Georgia next year, split the cost of premiums more or less equally among employer, employee, and state and local government.

As of July, 2004, Healthcare Group of Arizona, a state agency, has been offering small companies three types of plans, ranging from comprehensive to bare-bones. "Owners can typically afford what many employees can't," says Anthony Rodgers, director of the Healthcare Group of Arizona. The basic plan, aimed at healthy twenty- and thirtysomethings, costs just $95 a month.

Kimberly Howard, co-owner of Arizona Fire Protection, a $2 million Peoria (Ariz.) company that installs sprinklers, signed up with the Healthcare Group in August, 2004. Only employees with at least six months' tenure can participate, making nearly two-thirds of Howard's workforce, then numbering 22 people, ineligible. "Turnover in our industry is high, and without health insurance, it's tough to get people to stay," she says. Her three execs chose the comprehensive plan. The other eligible employees, all in their thirties, chose the bare bones option. Howard pays half of the employees' premiums. She hopes that the plan will convince her other workers to stick around a bit longer, solving two big problems at once.

By Joshua Kendall

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