They've Got You Covered

New state partnerships help make insurance affordable for small business

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

That's why in January, McQuade signed up for DirigoChoice. Dirigo is the result of a June, 2003, state law that aims to extend health insurance to all Mainers. Insurance is provided by a private company but negotiated by the state. To participate, employers must pay 60% of their workers' premiums. The state subsidizes premium payments for those earning 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 Tibbetts, a housekeeper, 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. "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 one of a slew of new state programs trying to help small companies provide health insurance for their workers. Since 2004, at least nine states have started new programs; four more plan to in 2006. It's not the first time the states have stepped in where the feds fear to tread: These programs build on an earlier wave of public-private partnerships that debuted in the late 1990s. States have learned some crucial lessons. Financial incentives are now bigger, and paperwork is minimal. States are working closely with agents and brokers who sell to small companies.

Despite successes in Maine, Arizona, and New York, some small business advocates remain skeptical. "These remedies may not be sustainable because they don't address the fundamental problems in the small-group marketplace," says Jamie Amaral, 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 cover the uninsured. Now some states are using the waivers to aid small-company employees. Another lift came from 51 Health Resources & Services Administration grants, given since 1999 to help states fund research of their uninsured. Then there are fatter state coffers: The major impetus to create a small-business insurance pool in Delaware was the surprising "discovery" of hundreds of millions of tax dollars at the beginning of 2005.


State insurance programs tend to fall into a few categories. Like Maine, West Virginia negotiated with private insurers and came up with its own small-business insurance plan. Kentucky is allowing the sale of basic 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 about 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, from comprehensive to bare-bones. 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. Employees need six months' tenure to participate, making nearly two-thirds of Howard's workforce, then numbering 22, ineligible. "Without health insurance, it's tough to get people to stay," she says. Her three execs chose the comprehensive plan. The other workers chose the bare-bones option, with a monthly premium of $95. Howard pays half the premiums. She hopes the plan will persuade her other workers to stay around a bit longer, solving two big problems at once.

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