Insurance Problems Faced By Small Business

The New York Times gives an example of the difficulties faced by small business in providing insurance for employees:

To understand the challenges of insuring the health of the nation’s work force, consider Varney’s Book Store.

After a long bout with emphysema an employee at Varney’s, a family-owned business in Manhattan, Kan., died several years ago. But for Varney’s health insurer, her legacy lived on.

The next year, 2002, the insurer raised Varney’s premiums by 28 percent — even though most of the other three dozen employees were significantly younger and healthier than their departed colleague, who had been in her mid-70’s. And Varney’s premiums continued to climb.

“It was as if her medical history stayed on the books for an additional three years,” said Jeff Levin, 46, who runs Varney’s with his younger brother. “How can you justify projecting those costs forward?”

Such are the challenges for smaller businesses in Kansas and the many other states where laws permit insurers to raise health premiums substantially for small employers when one worker incurs significant medical bills.

Many governors see this as a problem, and one solution being promoted is government reinsurance of catastrophic cases, a part of John Kerry’s health care proposal in 2004:

“Almost any kind of situation where one employee has a serious health condition almost makes the group uninsurable, because of cost,” said the governor of Kansas, Kathleen Sebelius, a member of a group studying health care issues for the National Governors Association. “Affordable coverage for small-business owners and self-employed individuals is probably the biggest challenge that we have in Kansas and most states.”

Ms. Sebelius, a Democrat, is currently at work on a bipartisan proposal with the state’s Republican insurance commissioner that would insulate small groups by having the state provide backup insurance for the most expensive medical cases.

“If the insurer was guaranteed never to have to pay out over $100,000, for example, it could be a much more stable situation,” she said.

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