Insurance reform may bypass states

Now that President Clinton’s health care proposal is decomposing, reform efforts could take one of two paths: states could become the laboratories of democracy or be bypassed altogether in an effort to allow companies to avoid their costly regulations. The Republicans have chosen the latter route.

“We are troubled that [the legislation] does not recognize the great strides states have already made in health insurance reforms,” says Lee Douglass, president of the National Association of Insurance Commissioners and the insurance commissioner from Arkansas. He adds that cases of insurance fraud would rise because regulatory controls would be lost.

The Employee Retirement Income and Security Act of 1974 (ERISA) allows large multistate companies that self-insure to avoid the patchwork of state laws and operate with one uniform health care policy. Some governors want that law changed so that those companies can be taxed to provide for the uninsured.

But studies suggest that the avoidance of state laws reduces premiums by as much as 30 percent. In fact, a study by Foster Higgins, an employee benefit consulting firm, found that large companies’ health care costs fell 2 percent in 1994. At the same time, smaller companies saw their premiums rise about 6 percent.

Alan Mertz, staffer for Rep. Harris Fawell (R-Ill.) who introduced the Republican plan in April, says that 85 percent of the 41 million uninsured Americans are working for or are dependents of someone employed by a small business. If smaller employers could form multistate coalitions and also avoid state laws, he insists, they too would pay less for insurance, thus enticing more firms to provide plans.

This plan “does not involve government micro- management,” says Mertz.

The commissioners’ association argues that 45 states have implemented some, if not all, of a model law it recommended to reduce health care costs for small businesses.

The reforms include capping rate hikes, outlawing pre-existing conditions exclusions and guaranteeing the right to renew and transfer coverage. The Republican plan would also do those things.

However, a study by the Intergovernmental Health Policy Project in Washington, D.C., concluded, “While small group market reforms may appear to stabilize the rates, they are unlikely to solve the problems of affordability and availability of insurance.”

Small businesses construe that study as proof of why they should be able to unite to buy insurance free from state regulations. They note that, currently, companies can form coalitions and buy from a third party or self-insure, but those entities must follow state laws.

The Republican plan “would give us real muscle in the marketplace,” says Jack Faris, president of the National Federation of Independent Businesses.

The legislation would require the associations to file detailed financial information with the Labor Department and to register with those states in which they plan to operate. The latter, says Labor Department Inspector General Charles Masten, will “make it easier to detect and investigate fraudulent activities.”

Ironically, it is usually the Republicans who push for greater states’ rights, while the Democrats argue for a more uniform federal policy. But Republicans are looking for new ways to reduce costs and increase accessibility, and they say state reforms, to date, have not done the job. And Democrats are likely to go along. After all, they crafted ERISA and authored the insurance reforms that were embedded in the Clinton plan.