Could Emerging "Private Exchanges" Foretell The End Of The Line For Brokers?

Entrepreneurship will almost always trump government regulation in this great country of ours. Somebody smart will almost always find a way to make a buck anticipating changes in government policy and practice. And if they're especially creative, they'll use the government's own policies as a jumping-off point.

While most insurers and agents are still sweating PPACA's mandate to create public health insurance exchanges in every state, a few private organizations are launching private efforts to create entities which THEY call "exchanges," but which may or may not embody the fundamentals of the exchange strategy laid out in PPACA.

A Minneapolis-based company, Bloom Health, scored major headlines in late September. Bloom has launched an "exchange"-type platform and process to administer defined-contribution benefits arrangements for employer groups. According to Bloom's propaganda,the company's pilot involved working with about 50 companies, with collective enrollment of about 25,000 employees. Employees were offered a variety of plan options, based on a fixed employer contribution, and given the chance to select one which made most financial sense to them. he Bloom system handled the enrollment and administration (not clear what happened at renewal time).

The process must have worked pretty well, since the company announced in late September that some 80% of its equity was being purchased by Wellpoint/Anthem, Blue Cross & Blue Shield of Michigan, and the holding company which owns the Texas Blues.

The acquiring companies will be tweaking the Bloom Health model, of course. They have no interest in a neutral marketplace. They intend to use the model to sell their own products in their own markets. So, as I understand it, in Michigan, the Bloom Health platform will be BCBSM's private fishing hole. Groups will be able to offer a variety of plan designs, but they'll all be offered by BCBSM.

In Western New York, Liazon has made a big splash with its Bright Choices benefits portal, through which companies with "1-2,500 employees (Liazon's propaganda)" can use a defined contribution strategy to "find a way out" of the problem of escalating employer health costs. Back in April, the company raised $12.5 million in capital to expand its marketing presence. Liazon has used Chambers of Commerce in New York and Maryland as vehicles to expand its reach. It would appear that the company's primary insurer is UnitedHealthcare, but they claim to offer coverage through a variety of other carriers as well. It's hard to find out how many companies have actually signed up, but the company's YouTube tutorials have experienced a couple hundred hits. My guess is that if enrollment was through the roof, we'd know about it.

And the consulting and brokerage giant Aon/Hewitt has made a big splash with its plans to launch a defined contribution "exchange" for giant employers which have agreed to use their proprietary platform to make a variety of Medicare Advantage plans available to retirees. Again, employers will provide retirees with a fixed monthly contribution, and retirees will be expected to select a Medicare Advantage plan from among those offered, and pay the difference between the employer contribution and the plans' costs themselves.

Here are some thoughts on these so-called "exchanges," just for the purpose of creative discussion:

1) One of the oft-expressed concerns of a lot of health care experts was that the development of exchanges under PPACA would lead to a mass exodus of small employers from the small group market. That may yet happen...but not for the reasons one might expect. These early pilots, driven by entrepreneurs who are interested in making a buck, suggest that smart people in the market are chasing self-insured employers, which are a) large, b) closer to their actual health care expenditures, since they pay them directly, and c) technologically sophisticated enough to roll out a defined contribution model quickly and efficiently.

2) The defined contribution model will certainly have the effect of enabling employers to control their health coverage expenditures...but will that's about the extent of their cost-containment ambitions. Just as was the case with the shift in pensions from defined benefit to defined contribution plans, these early experiments will demonstrate their efficiency at shifting downside financial risk from employers to individuals. There is some rhetoric which suggests that such a shift will create a new generation of "empowered" consumers, who will shop aggressively for cost-effective service providers. The rhetoric is mostly that. It is just as likely that large employers, having contained their own downside risk, will go about their businesses and leave their employees and retirees with hyper-inflating, undefined contributions in the face of hyper-inflating health care costs. I'm anxious to see evidence to the contrary...good luck finding any.

3) If there's any interesting benefit to be seen from these pilots, it will be in the havoc they wreak on the traditional distribution channels. Bloom and Liazon clearly have the potential to displace brokers from the health care coverage sales and service transaction, replacing them with technology and call center personnel. These companies are plainly seeking to disintermediate agents and brokers, and the costs they represent. Bloom claims that the company generates revenue from fees charged directly to employers. Liazon's revenue stream is a little less clear to outsiders, but even if the company generates revenues from sales commissions, I suspect the company can do quite well at a rate of compensation which is half, or less, of what insurers must pay their welter of retailers and wholesalers.

4) It's not clear how any of these pilots actually sell coverage. If I look at their processes, it seems they are based on the assumption that someone else has actually sold the product; their emphasis seems to be assisting employers in setting up their defined contribution plans, "educating" employees, and administering the allocation and collection of contributions on the back end.

5) This is what gives me pause about the implications of these pilots for small businesses. A potential downside of state exchanges for small employers and individuals (at least as they're conceived via PPACA) is that they will be,at best, passive tools available to those who seek them out. It seems to me that a private small group health exchange would have an advantage in its ability to market actively to small employers and self-employed individuals. Yet the focus of these pilots seems to be largely on administering post-sale transactions: enrollment, renewal, billing, collection and allocation of premiums from employers and employees.
Given that most insurers already have robust and powerful back-end applications to support large employers, the early focus of these experiments seems to be on how better to serve their largest and most profitable clients.

I stated in an earlier entry here (http://polkiananalysis.blogspot.com/2011/08/so-much-angstover-market-no-one-really.html) that, despite all the wailing and gnashing of teeth regarding emerging health exchanges, nobody seems to care too much about how the small group market is served. It seems to me that private small group exchanges will need to combine a mix of multiple carriers offering standardized plans on a common platform, aggressive marketing, good customer service, and a back end well-suited to bring the administration of both defined contribution and defined benefit plans down to groups of 50 or fewer employees. But with insurers, brokers, and consulting firms scrambling to find ways to serve their largest clients better, there's a strong possibility that the small group market will continue to be an afterthought, and that state exchanges will evolve quickly into a dumping ground for small groups and individuals.

If there are experimental models out there which can give me hope, I'd sure like to see them. If not, somebody's going to have to build one, or half the employees in our country will soon be even more dependent on the voluntary brilliance and largesse of insurance companies ever more reluctant to do business with them at all...which is, after all, how we got to this problem in the first place.

How Health Insurance Reform Is Like A Soap Opera: Meditations On A Price Point

My 26-year-old son got good news from his health insurer recently. His non-group health plan will not be increasing in price this year: he'll continue to pay about $155 a month for a pretty decent individual health plan. (It helps that he's in excellent health; a little utilization would have kicked up his rates significantly.)

He maintains this coverage, even though he works for an employer that offers group coverage, because for a guy his age, his employer's plan provides less generous coverage at a MUCH higher price.

Before we started celebrating as if he'd won the lottery, his news got me thinking about how much has changed...and how much hasn't changed...in the health insurance market over the past couple decades.

I'm so old that the first group health plan I was exposed to was a guaranteed-issue, community-rated UCR health plan that cost (no joke) six dollars a month for an individual employee and fourteen dollars a month for a family. Over three years, the cost of that plan increased 140 percent...to $14.50 for a single employee and $33 per family.

In the 1970's, commercial insurers began to "compete" with regional Blue Cross/Blue Shield plans for business. Mostly, these companies were life insurance companies, which sold heavily-underwritten health coverage to groups as a "loss leader" in order to obtain a company's group life business, which was much more profitable.

BCBS plans responded to commercial insurers' "cherry-picking" by introducing health underwriting, which undercut their credibility as community insurers. Their theory: they didn't want to become "dumping grounds" for customers in bad health who couldn't qualify for "good" coverage elsewhere.

This created a bad deal for groups with less-than-perfect health conditions, but provided some security to groups which qualified. So we all kept our mouths shut.

Consider all the changes which have been attempted over the last 25 years in an attempt to control the rising cost of health coverage, from managed care to "managed competition" to "integrated delivery systems" to HIPAA to PPACA.

The results: coverage for my 26-year-old son in excellent health is nearly 2600 percent higher than it would have been waaay back then.

For an old guy like me, the cost could be 10,000 percent higher...IF I qualified for the coverage in the first place, which I probably wouldn't since I have a little high blood pressure (treated with medication costing $1.99 a month) and a little asthma (treated with an inhaler that costs $35 dollars every three-four months).

So...how have all these machinations, strategies, policy changes, regulations, and legislative initiatives contributed to containing the cost of health coverage?...Not much, that I can see...

Now...Supposedly, come 2014, insurance rating schemes will revert back to modified community rating. That will probably double my son's rates, to roughly what they'd be in New York or other community-rating states. There are those who'd say that my son is getting screwed. I don't agree, of course. Because, theoretically, he and all his friends will be paying higher rates to offset the rates charged to old guys like me; that should reduce my premiums a little. And when HE gets to be an old guy, his premiums will be partially subsidized by those younger than he is.

This is the essence of "community rating:" allocating the cost of health coverage more fairly across populations. It's how health insurance started eighty years ago.

For nearly two decades, insurers have gotten fat off the strategy of selling non-group coverage only to the young and healthy who don't particularly need it, and violating the principles of community rating in the name of "cost containment." How has it worked? Last time I did the numbers, the cost of small group health insurance has grown by 150% in the past decade alone; the cost of non-group coverage, sold only to younger, healthier people, has grown faster than that.

Not that there isn't plenty of blame to go around. My son's renewal letter blames the "unholy trinity" of health care cost inflation: an aging population; increasing provider costs due to improving technology; and higher utilization of services. If you read a rate renewal letter back in 1980, it would have said the same thing.

And it's largely true: the largest portion of insurance rates is attributable to insatiable provider costs.

But in general, there's little evidence to suggest that insurers have been particularly tough with providers. Insurers see themselves as facilitators and transaction processors, not as consumer advocates.

And insurers' administrative costs have continued to hyper-inflate, in real dollar terms, just as fast as provider costs. Pretend for a moment that administrative costs really do average ten percent of premiums. In 1980, when insurers were doing minimal underwriting, and claims were paid largely manually, that ten percent would have averaged 60 cents per contract per month, or $7.20 per year. Given all the innovation in IT systems, the "economies of scale" that are supposed to come from insurer consolidation, and other "aggressive" cost control measures, the average cost of employee benefits is a little over $10,000 per employee per year; so at 10% of premiums, insurers' administrative retention has increased to $1000 per employee per year...about a 14,000 percent raise.

The core problem is that, in our cockeyed health system, no-one...not hospitals, not insurers, not physicians...have any incentive to bring the cost of health care...and therefore, the cost of insurance...down to some more reasonable level. All their incentives run in the opposite direction.

The only people really being squeezed are those who pay the tab: employers, large and small, and individuals...who have no power in the political process.

This is the reason that my long career of health insurance reform activism seems so much like a soap opera: the players may change, the specifics of the situation may be different, but the themes, and the plot likes, are always the same. Looking back over many years, it's depressing how often we've heard the same players saying different things, and cloaking their machinations in different rhetoric...even though their actions have produced the same results: more pain for the folks who really pay the bill.

Chamber, Association Health Plans Worry About Insurance Reform: Is The Gravy Train Grinding To A Halt?

One of the potential casualties of health insurance reform, and of the development of state health insurance exchanges, will be the health plans sponsored by chambers of commerce, trade associations, and professional groups. The inefficiencies, greed, and laziness of these plans and their sponsors make them particularly vulnerable as states experiment with the implementation of electronic marketplaces which might operate more efficiently than the traditional ways of marketing and selling health plans. Some of these groups see the change coming, and are trying to adapt. Most have their heads...in the sand...and pray daily that things will turn out all right. Things probably won't...not for the associations, and not for their members.

I got some interesting feedback from my last entry, in which I wrote about the head of a prominent Chamber of Commerce health plan, who has a conflict of interest because of his participation on the panel crafting regulations for Ohio's health insurance exchange.

I raised the conflict because the Chamber receives about $15 million in commissions and other fees from the insurer whose products the Chamber endorses. My point was that the organization's financial dependency on those fees (which comprise about 75% of its budget) made it unlikely that the Director's decision-making would be focused on the best interests of his organization's members.

I also observed that, rather than freeing the Ohio exchange to become more cost-effective and efficient to help reduce the cost of small group health insurance, his incentive would be to preserve his organization's income stream by assuring that the exchange could NOT operate in a way which might reduce costs (and therefore prices) for exchange participants.

Sure enough, that task force produced a recommendation that premium rates for small businesses both inside and outside the exchanges HAD to be the same. So I asked: if the people who are supposed to be representing the interests of small businesses at such tables have sold out, who WILL speak for small business?

I received some calls and e-mails from people who recognized the guy I was talking about. The correspondents all assured me that he was a splendid fellow, and very smart, and that his FIRST thought was for his members.

But nobody suggested that my key point was wrong: while the Chamber positions itself as a small business advocate, it is completely dependent on its insurer relationship for the vast majority of its income. I'm not an economist, but I understand a few things about the "ecology" of Chamber health plans, and one of them is, you work for who pays you. If members' collective dues are $3 million, and your insurance company is paying you another $15 million of your members' money...you work for your insurer.

And if there's a potential for conflict, you're five times as likely to see things your insurer's way as you are to see them your members' way.

Lots of chambers of commerce, trade and professional associations, and other groups are going to be facing a day of reckoning as health insurance reforms are implemented at the state level. Many of these groups sponsor health plans, largely as revenue-generators for the organizations themselves. There are a lot of tricks. Some permit only agents which are organization members to sell the sponsored plans. Most receive hefty marketing and/or sponsorship fees from their sponsoring insurers, which can add up to hundreds of thousands of dollars. Most such plans are not professionally managed by the organizations' staffs.

The result of all these arrangements is all too often that members are being sold a bill of goods, and are seduced into believing that "their" organizations are providing them with good deals, when in reality, their members are being fleeced.

The Chamber I referenced above keeps all information regarding its health plans a secret (and such secrets are rarely in their members' interests). Nobody really knows how many people participate in the plan, what annual premium volume is, what the Chamber's "take" is...and their lawyers will almost certainly pay me a visit if I use their name. So I'll make my point by telling another story.

A few years ago I did a consulting gig for a pretty good-sized regional business organization. The group had about 4,500 member companies; about 2,400 of them participated in the health plans. But the plans weren't growing, and the leadership wanted to know why, and what they could do to improve the plan's performance.

Discovery was a pain. The insurers (there were three) were not co-operative, nor was the broker who ran the plan. But I've been around a little, so I was able to piece the puzzle together.

In every case, when we added up everything coming out of the health plans... commissions, management fees, overrides, and six-figure "sponsorship payments" to the organization...the administrative cost ratio was up to almost 25% of premium before a claim ever got paid. So total administrative costs were in the 30-31% of premium range.

As a consequence, the cost to members of participating in the association's plans was HIGHER than if they'd signed up directly. So members would join, sign up for the health plan for a year, and come renewal time, their agents would move them out of the association's plans at "street rates," which were lower.

When I presented my report to the organization's Board, they were horrified...for the wrong reasons. They were terrified that their members would find out. But they were so dependent on the income they received from the insurers that they couldn't risk "offending them" by actually negotiating with them. So they shelved the report.

Within three years, membership in that association dropped by 40%...and the income it had been receiving from the insurers disappeared as participation in the health plans declined to almost nothing.

A lot of membership groups are in exactly the same boat. They've been jiving their members in order to get paid by their insurers. But with the pressure on insurers to reduce administration costs, those groups are under a lot of pressure to demonstrate, both to their members and to their insurers, how they add value to the equation. Most of them can't.

So they face a Hobson's choice: either they can WAKE UP and recognize the business they're in, have some unpleasant conversations with their members and their insurers, and rebuild their plans, or they can do nothing, and watch their memberships and related income plummet. And in the association business, doing nothing is almost always the strategic choice. So within 3-5 years, they'll be looking at MUCH smaller memberships and MUCH less revenue, and wondering what happened.

Think about YOUR chamber or association. Which choice do you think THEY'LL make?...

Health Insurance Exchanges...How Will/Can The Private Sector Compete?

Much of the large-scale implementation of Obamacare's insurance reform plan rests with organizations which, by and large, are the stuff of myth: state health insurance exchanges. This should give us pause.

Any health care nerd you know can tell you what a health insurance exchange is supposed to do: exchanges are statewide electronic marketplaces which will enable small businesses and individuals to shop for, purchase, and manage health plans in a secure on-line environment. The exchange will handle marketing, at least some sales, and presumably renewals, as well as administer whatever tax credits or subsidies each eligible exchange customer will receive. And it will perform other administrative duties as may be required.

Tall order. Good thing the exchange model is based on a solid foundation of experience and good results produced by "role model" organizations.

Except that's not true, either. While there are a few large Chamber or association health plans which have done a good job for their members, these plans (which have problems of their own) generally offer a variety of plans from a single health insurer, not a...tasteful buffet...of plans from multiple carriers.

The only real working example is the Massachusetts Connector, the exchange established by state government leaders in that state (proposed, you may recall, by Republican Governor Mitt Romney). So I thought I'd take a quick look at The Connector, to see how such mythical beasts might affect the small group market in the world post-2014.

The Massachusetts Connector was established in 2007, and its start-up subsidized at the level of over $40 million, according to independent sources. Its operation is financed by a "fee" charged to insurers that look for all the world like commissions.

A key to the establishment of the Connector was an individual mandate; individuals have to purchase insurance or pay a modest fine. Subsidies are available to underwrite premium costs for the working poor.

By the end of 2010, the Connector had enrolled just shy of 200,000 Massachusetts residents. An estimated 150,000 of them are individuals whose coverage is subsidized in some way. The remainder...the unsubsidized participants, are employees of small businesses, or are self-employed. The state estimates that the Connector currently covers less than five percent of the small group and individual market in Massachusetts.

From a systems standpoint, the Connector seems pretty transparent and easy to use. Individuals and/or small business owners are guided through a pretty easy process of shopping for and comparing among plans, which are organized simply as "bronze," "silver," and "gold" plans. Because Massachusetts is a community-rating state, premiums are higher for young people, and still pretty high for the 50+ age group. But with no significant health underwriting, application and enrollment look pretty easy

So far, so good.

But what the wonks generally don't talk about is that the cost of operating the Connector, and of maintaining the current level of subsidies, at a consistent level of coverage for everyone, is very expensive . There have already been attempts to reduce or eliminate Connector coverage for certain groups (like illegal immigrants). And because 4 out of 5 Connector participants are receiving come level of subsidy for their premiums, their coverage is highly dependent on the willingness of their fellow citizens to tax themselves to maintain those subsidies for a growing population of exchange participants.

So...flash forward to 2018...Health exchanges will be in operation in every state, and will have three years of track record. Four out of five participants in those exchanges are receiving subsidized care, but the federal subsidies, which are assured for the first three years, are set to expire, leaving a big unfunded mandate on state governments. We can have those discussions, right along with the ones about freedom and liberty.

But my point is to think about market penetration, and its implications. Because it is a relatively compact, relatively homogeneous state with a liberal political tradition, one can assume that the "take-up rate" there might be higher than average. But let's assume that they're right on target, and after three years of operation, exchanges cover about five percent of the small group and individual markets.

It's still a huge number. Collectively, it could represent $120 billion in premiums; the administrative cost portion, even if it's half the federally-mandated loss ratio (because there are supposed to be some efficiencies in operating exchanges on a large scale) could run $12 billion or more per year.

But it's still five percent of the market. And not a particularly attractive piece of it.

So who's going to be taking care of the other ninety-five percent?...

I've been giving some thought to what tools and capabilities will be necessary for brokers, insurers, small business owners, and self-employed individuals to compete with these mythical beasts. I'll share some in an upcoming post.

Meantime, we've had some...lively conversation...in the past on the politics of health insurance reform. How about a conversation about business strategy? Instead of being afraid of how insurance reform, and especially health exchanges, might threaten your business, let's think about what stakeholders are going to need to do for their piece of the other 90-95% of the market...

"Repeal And Replace" With...What?...

Okay, The New Majority has had its fun...

In a largely partisan vote, members of The New Majority in the U.S. House have kept faith with the people who elected them by passing the "Repeal The Job-Killing Health Care Law" Act (in a gesture of The New Civility, House Speaker Boehner referred to the bill as the "Repeal the Job-Destroying Health Care Law" Act...a nicety perhaps too subtle for us here in the grass roots of America).

There will be no action on the bill in the Senate, where Democrats hold a narrow majority.

So...NOW what happens?...

The New Majority has set itself on a course to block key funding provisions related to Obamacare...but that, too, faces the prospect of a pesky Senate .

In reality, the stage is set for establishing "Reforming Health Reform" as a plank in the Republican platform for 2012.

Now, I'm not a Washington insider, but it would seem to me that the Republican strategy would have a little more...intellectual and political heft...if they were a little more forthcoming about what they're FOR.

It's not like we haven't been here before. Republican Congresses have been responsible for the last two quixotic attempts at "health reform:" The enactment of HIPAA in the mid '90's was supposed to increase access to health coverage for small businesses and individuals, as well as reduce the rapid rise in health insurance costs; it did neither, largely because the law and attendant regulations were written by insurers. And of course, there was that exercise in fiscal irresponsibility known as Medicare Part D.

So let's stipulate for the moment that the republican party has not recently demonstrated either much fiscal restraint of any particular expertise in health system reform.

And let's pretend that there really IS a desire on the part of The New Majority to do something constructive...to fix parts of the new law which are broken(or easily breakable) while not messing about quite so much in the private market...and creating incentives for people voluntarily to sign up for health insurance.

First, let's recognize a fact: In Medicare, Medicaid, The Veterans Administration and other programs, government is the biggest purchaser of health care services in our country. If I were advising The New Majority, I'd place priority #1 on improving the clinical and administrative efficiencies produced by the health plans currently under the direct oversight of the Congress.

Second, let's recognize that the private health insurance market is currently four markets: the market for large, self-insured employers (which have been quite aggressive in seeking exemptions from some of the plan design provisions of the new law, primarily to enable them to continue offering high-deductible health plans to their employees); and within the fully-insured market, companies with more than 50 employees; companies with 2-50 employees, and individuals and the self-employed, who are currently precluded by federal law (and most state laws) from obtaining group coverage.

Because large self-insured employers' health plans are currently regulated by the federal government under ERISA, it's appropriate for Congress to reinforce its oversight of these plans.

For the rest, Congress needs to own up to the fact that federal "assistance" in the fully-insured market has largely exacerbated problems faced by small employers and individuals in obtaining affordable coverage (there are a few exceptions, in my opinion...although many of the "consumer protections" being touted in the new law are actually statutory attempts to UNdo some the provisions under HIPAA which have created problems in the non-group market). So here, perhaps the key for Republicans is to do less, not more.

A key element of the Republicans' health reform platform for many years has been to repeal all tax preferences for the purchase of health coverage. That ain't going to happen. Instead, let's go the other way, and make sure that the tax preference follows whoever the purchaser is. Make health insurance premiums fully deductible for both companies and individuals.

There seems to be agreement that even Republican leaders are reluctant to do away with the health insurance exchanges incorporated into the new law. But there are some legitimate concerns that exchanges could adversely affect competition in the small group and individual markets. That's largely due to the fact that the new law tied new subsidies for premium costs exclusively to participation in the new exchanges.

So once again, let's go the other way, and create incentives for the formation of private Small Business Health Plans. This would enable small employers and individuals to band together in the private sector, in the voluntary marketplace, to purchase health coverage jointly. Give these private entities access to the same subsidies as are available through the exchanges, encourage them to use IT and other tools to increase administrative efficiencies, and create powerful private entities, governed by purchasers, to compete with public exchanges.

And put the mandate off till way, way in the future. Only two constituencies support a mandate: health policy wonks who believe, but can't prove, that mandating the purchase of health coverage will somehow subsidize the cost of coverage for those currently excluded for health reasons; and insurers, who both see the opportunity to capture a few million new customers, and know that once a mandate is enacted, there won't be any further need to worry about cost controls, because you'll have to buy coverage, no matter what it costs.

Throw in some tort reform, and you've got yourself a "replacement" for Obamacare.

Both the benefit and the problem with this approach is that many of these ideas have been part of the Republican playbook for a couple of decades, and even when they held firm majorities in Congress and control of The White House, the ideas have gone nowhere.

This is why it's highly unlikely you'll see a real "replacement" bill introduced in this Congress. Because for a couple of decades, Republicans have proved themselves unwilling to take much of a lead in health reform. It'll be much more fun to holler about liberty, obstruct the proceedings, and wait till 2012...

Sales Commissions And Health Insurance Exchanges

As Al Franken's Stuart Smalley character was known to say, "Denial is not just a river in Egypt."

Insurance agents and brokers are apoplectic about a recent recommendation to the Obama Administration by the National Association of Insurance Commissioners, stating that sales commissions should be considered as administrative expenses under the new health insurance reform law.

This is significant because beginning as early as January 1st, 2011, insurers are under a federal mandate to spend at least 80 percent of collected premiums on medical expenses. This caps insurer administrative expenses at 20 percent of premiums for small group insurance coverage, and at 25 percent of premiums for individual (non-group) coverage.

Response from the insurance industry and lobbying associations representing agents and brokers has been predictable: they have blamed everybody else (hospitals, doctors, lawyers, pharmaceutical companies) for health insurance cost inflation; they've railed against government interference in health insurance pricing; they've predicted that many insurers may be forced to leave the market if they can't compete in a more efficient world; and they've made dire pronouncements about declining customer service if agents must abandon their roles as "educators and advocates" for their small business clients.

All of which conveniently overlooks some important objective realities.

Health insurance coverage costs an average of 18-20 percent more for small employers than larger companies pay for comparable coverage. The principal reason for the cost differential is administrative costs, which average 25-27 percent of premiums for small groups and 30-40 percent of premiums for individuals.

The largest components of those cost differences are related to marketing, sales, and underwriting. Easily half of the difference is related to commissions and overrides paid both to general agents ("wholesalers")and selling agents ("retailers.")

Despite the onslaught of information technology, small group coverage remains heavily dependent on paper forms, complicated business processes, and a lot of administrative inefficiency, as technology solutions which have permeated other niches of the industry have not touched the small group market.

Why not? Because insurers are almost solely dependent on third-party agents to sell their products. And business processes which might simplify shopping for coverage threaten to "disintermediate" third-party salespeople, who have a lot of power with insurers.

Back in the late 1980's and early 1990's a few small business organizations (including my COSE alma mater) were able to produce genuine cost savings for their members by using the power of large numbers to reduce administrative costs through more efficient marketing and sales, and through the use of management information to negotiate more cost-effective rates from participating insurers.

The growing leverage of these purchasing groups produced a backlash among smaller insurers and agents, which resulted in many states enacting laws which prohibited insurers from "discounting" administrative costs for such groups. This protected agents' income, even as it created a disincentive to develop any cost-related efficiencies in health insurance marketing and administration.

Health costs (hospital, physician, and pharmaceutical among them) being equal, the only way to have a meaningful impact on small business' health insurance costs is to attack these administrative expenses...including sales commissions.

Certainly, a key differentiator for new statewide health insurance exchanges ought to be the ability to use administrative efficiencies...in the form of plan standardization, simplification, and reduced marketing, sales, and underwriting costs...to affect the price of health insurance coverage. A small business owner purchasing coverage directly through an exchange on-line should not have to pay the same cost as a business owner who buys through an agent, whose paperwork is processed by a general agent.

Administrative efficiency can also be a differentiator for insurers who, because of their size or market position, cannot obtain the kind of discounts from provider groups that the big Blues or dominant local insurers can obtain.

There's no doubt that agents are going to be subject to a squeeze in the brave new world of health insurance reform, just as middlemen have been squeezed in virtually every service industry. Many of the protests raised by insurance agents in this instance mirror those of travel agents in the infant stages of Priceline.com.

In the long run, just as with travel services, customers will flock to purchase health coverage in the easiest most transparent and cost-efficient manner...and if that means sacrificing their relationships with agents for a lower-cost, better deal through an exchange, that's what's going to happen.

Insurer and agent fears about exchanges aren't based on fear that they won't work; it's based on fear that they WILL work. Much of agents' business success is based on managing the complexity of the status quo, and insurers use the complexity and pain involved in shopping for coverage as a defensive business strategy. Neither party sees itself benefiting from a system which encourages transparency and simplicity.

That's why, instead of trying to find ways to game the regulatory process, agents should be pressuring insurers to do everything they can to increase simplicity and efficiency, and reduce their costs...even though, since their commissions are largely calculated as a percentage of premium, lower costs may lead to reduced commission income.

And they should start collaborating to develop the means to compete with exchanges through faster, simpler, and more customer-friendly experiences, rather than hoping that the system will continue to reward complexity and lack of transparency.

In a world where shopping for health coverage is easy, efficient, and transparent, the only beneficiaries are the small businesses that pay the bill. And that's what health insurance "reform" is supposed to be about.

As Insurers And The Government Dicker, Who's Speaking For Purchasers?

WOW!...Time flies...After a few weeks of triumph (our baby daughter's high school graduation) and my Mom's death, time to check back in for a view from the grass roots of America...

I spent some time in Ohio's state capital (Columbus, for the geographically challenged) talking with officials of the state's Department of Insurance about the implementation of federal health care reforms at the state level, where most of the really heavy lifting and ongoing work of actually covering people will be done.

They're a little busy. The first order of business is to implement the federally-mandated and (partially and temporarily) funded high-risk pool for hard-to-insure Ohioans. Ohio has had some experience with such a risk pool, and most of it has been unpleasant: largely because of very high premium rates, Ohio's current risk pool covers fewer than 1500 Ohioans. A temporary federal subsidy may make rates a little more affordable for some folks for awhile. The high-risk pool is supposed to be in place by July 1st.

By September 1st, all employer plans will be required to extend family coverage to dependents under the age of 26. While large, self-insured employers have till September to take that action, most Ohio insurers have already implemented that change for fully-insured customers (read: small groups and individuals) effective July 1st. The cost? We'll see...but it ain't free...

The REAL action, though, is going to revolve around the establishment of a statewide health insurance exchange by January 1st, 2014. Through the exchanges, individuals and companies with fewer than 50 employees are supposed to be able to shop for, compare, purchase and manage their health plans on-line. Larger employers will supposedly have the option a couple years later. And ultimately, the high-risk pool will be absorbed into the exchanges.

The exchanges are going to have a lot of work to do. In addition to packaging, marketing and managing health plans for participating insurers, they'll be tasked with means-testing applicants to determine whether they will qualify for an expanded Medicaid program (again, temporarily subsidized by Federal funds) or for a private insurance subsidy (ditto) for participation in a private health plan.

How's all this going to work? No one knows. The Federal government has yet to produce regulations which will guide the states' implementation of the exchanges.

This is, of course, a practical problem. I have a little experience with developing large-scale health plans and the infrastructure needed to support them. And three and a half years is NOT a lot of time.

Beyond logistics, though, there are policy issues to be agreed to between the Fed and the industry. Those negotiations are very likely to involve a lot of chicanery. In general, insurers are not happy at all at the prospect of having to do business in a new environment of transparency and efficiency. Here are just a few of the issues to be determined:

What incentives will be created to encourage administrative efficiency? This is a really big deal for small businesses and individuals, where between 25 and 40 percent of premiums go to cover administrative costs. The new Federal law requires insurers to hold their administrative costs to 20 percent or less of premiums for small groups, and 25 percent or less for individuals. Currently, insurers' efforts are focused on attempts to re-classify what have long been considered as administrative costs as clinical costs, including many marketing and community outreach costs.

Recently, for example, the CEO of the Ohio Association of Health Plans suggested that insurers be "incentivized" to encourage hospitals and physicians to adopt universal electronic medical records by classifying the associated costs as related to patient care, rather than administrative costs. Expect to hear much more highfalutin' rhetoric from insurers about their focus on patient care as a result of games like these.

What will happen to underwriting costs?No one knows for sure what percentage of insurers' administrative costs are attributed to the health screening imposed on every individual and small group application, but it wouldn't be unreasonable to estimate the costs at 6-7 percent of premiums. By 2014, those underwriting practices...and theoretically, their attendant costs, will be going away. Presumably, a portion of those underwriting costs will have to be re-allocated to enable exchanges to do the means testing work they'll be required to do. How will we know whether that happens?

What will happen to marketing, advertising and sales costs?Marketing, advertising and sales costs make up easily 10-12 percent of small group and individual administration costs. Insurers say that these costs are high because the process of selling small group and individual coverage is very inefficient. Theoretically, the exchanges should bring a high degree of simplicity, standardization, and administrative efficiency to the process. In Massachusetts, for example, it appears that groups using the Massachusetts Connector for their coverage pay lower premium rates when they access the Connector directly than when they do so using an agent or broker. But in most states, including Ohio, there are literally laws against rewarding marketing and administrative efficiency with lower rates. A well-run exchange has the potential to reduce marketing and sales costs by as much as half. Who'll make sure that happens?

While much ink is being spilled over the Obama health plan's relatively weak efforts to rein in medical costs, insufficient public discussion is occurring around these matters which...well, matter...so critically to the prices which small businesses and individuals pay for their health coverage. Given the ability to do so, exchanges could reduce the administrative costs portion of their health plans by as much as half.

But right now, those conversations are taking place largely in the dark, between newly-hired federal bureaucrats and seasoned and cynical insurance industry lobbyists. Which ought to make us all just a tad uncomfortable...and skeptical...that these important new vehicles really will have the flexibility to change the small group and individual insurance markets. Usually, if you take a bunch of broken stuff and jam it all together, you just get one big, REALLY broken thing.

Hope our self-styled small business advocates are paying attention to the right things...

The End Of Rescission: The Perils Of Regulation By Anecdote

Last week the national media triumphantly announced that, well in advance of the legislatively-imposed deadline of September 1st, the insurance industry had agreed to end the process of rescission: that is, canceling coverage for insured customers who developed medical conditions after having purchased individual health coverage.

Accounts suggested that big insurers such as Wellpoint had run individuals' claims through a computer model to determine whether customers who had developed, for example, breast cancer after having purchased their health plan might have known about their health conditions prior to buying coverage, and therefore may have misrepresented their health conditions on their applications.

(Interestingly, I haven't seen any accounts indicating what percentage of applicants screened in this way might actually have lied on their applications).

The year-long debate over health insurance reform was predicated largely on the need to curb such behavior on the part of the insurance industry; one was left with the impression that rescission was rampant across the country.

But, setting aside the notion that such behavior can easily be seen as reprehensible, the numbers tell a slightly different story.

In its editorial on the subject, the New York Times reported that three big insurers had rescinded coverage for 20,000 individuals nationwide since 2005. The National Association Of Insurance Commissioners issued a report concluding that some 27,000 policies had been rescinded over an overlapping period.

For those who faced rescission, the effect is undoubtedly catastrophic; having had their coverage abruptly canceled, and having been accused of misrepresentation by their insurers, those individuals (who all had health conditions) would have been unable to find coverage anywhere at all in the private market.

But...

Even if those two studies measured parallel universes, over a five-year period, rescission occurred among fewer than two-tenths of one percent (.0019) of the 24.7 million individuals who are privately insured (the 176.3 million people covered by group plans aren't subject to rescission, unless it can be proved that an insured lied on his/her application).

So of all the 200-+ million people with private insurance in America, this new regulation has benefited about two-thousandth of one percent of the insured population.

The health reform debate has almost always relied on individual stories to make it real for voters and legislators. And this is an excellent example of how such stories can be a tad...distorted...in the political context.

There's little doubt that, for those who are or might have been affected by rescission, the new health reform law will be a real benefit. But it does beg a few other questions, such as:

1) Given how extremely rare such cases have actually been, why did it take a new federal law to prohibit it? Are insurers simply that arrogant, or that ignorant, that they couldn't have stopped the practice voluntarily themselves?

2) Relative to the cost of building those computer models, what was the actual cost savings to insurers (and, by their own implication, their customers) from rescinding this microscopic percentage of individual policies, and what will be the actual cost of discontinuing the practice (this will be important when insurers begin crying the blues over the premium increases they'll attribute to covering people with existing health conditions)?

3) How might that cost compare with the everyday outrage that, for small businesses and individuals...every single small group and every single individual in America with private coverage...between 25 and 40 percent of their health insurance premiums cover not medical expenses, but administrative costs? Compared to the inefficiency and bureaucracy which result in those costs, the actual cost of rescission is absurdly inconsequential (though it did have clear political benefits).

Just brings to mind what a former Congressman friend used to say about campaign financing: Everybody knows what should be against the law; it's what's legal that'd make you cry...

"Don't Blame The Wolf For Being a Wolf:" The Need For Insurance Industry Oversight.

I'm reminded of the Russian proverb above when I hear people moralize about the "outrageous behavior" of the health insurance industry.

The wolf is the product of its evolution and its environment. Its behavior reflects those elements.

In much the same way, the health insurance industry is the product of the regulatory environment in which it has grown over the last 75 years or so, since the emergence of the first Blue Cross and Blue Shield plans, and the subsequent entry of commercial life insurance companies into the health insurance business.

(Recall that, until relatively recently, life insurance companies sold health insurance coverage as sort of a loss leader: a product which it was necessary to sell to get group customers to buy group life products, which were much more profitable. The emergence of mega-health companies is a product of the last thirty years or so.)

In general, companies selling fully-insured products, whether to groups or individuals, are strongly influenced by state regulations. And since the regulatory process is very closely monitored and managed by insurers, some states have very special and industry-friendly regulatory standards. In Ohio, for example, insurers operate under a special set of accounting rules which enable them not to report investment income on their balance sheets.

And since most states' regulators have as their primary mission the protection of the solvency of insurers doing business in their states, instead of advocacy for the consumer, how insurers account for their costs of doing business tends not to receive too much skeptical oversight.

As the federal government begins to take up a much broader role in industry oversight, some of the cracks in the existing state regulatory structure are going to become increasingly apparent...as will the magnitude of the challenge which federal regulators will begin to confront as they attempt to exercise more control over insurers' behavior.

Late last week media accounts pointed our (rather shrilly) a perfect case study in regulatory inconsistency and the role of the federal government as overseer. Ostensibly in the face of the new federal requirement that health insurers reduce maintain an administrative cost ratio which must not exceed an average of fifteen percent of premiums, accountants at Wellpoint reportedly have reclassified some 500 million dollars in administrative expenses as patient care expenses. Community outreach programs, brochures created for distribution at health fairs, material promoting nurse-on-call programs...the company apparently sought to dump any expense they could possibly justify as patient care into the medical claims cost bucket, in an effort to reduce their administrative cost ratio in advance of the new law's taking effect.

Needless to say, this is not what Our Friends In Congress had in mind. Their focus is on the 25-27 percent of small group premiums, and the 30-40 percent of individual health insurance premiums, which insurers keep as administrative costs. And their intention is that insurers find ways to become more efficient. The combination of the enhanced use of technology and simplified underwriting provide insurers with opportunities actually to reduce their spending.

But of course, the new law doesn't say precisely HOW insurers are to bring their administrative cost ratios down. So Wellpoint just did what insurers typically do: play accounting games to create the appearance of compliance with the law without actually changing their behavior.

The next two or three years will produce dozens and dozens of similar stories. Federal regulators are going to have their hands full trying to bring the wolves to heel.

The (Latest) Health Care Reform Debacle: What Went Wrong, And What to Do Next

I've been following the politics of health care reform for nearly 30 years, and I have never seen anything so bizarre as what has unfolded in DC since Tuesday's special election in Massachusetts.

There has been so much dithering about what Senator #41 means to the future of health care reform in this Congress and forward, that I can't find anything new to say about it.

Except this:

By my own crude sense of measurement, I've participated in six attempts to reform the health insurance system at the local, state, and national levels (modesty and post-traumatic stress disorder prevent me from listing the specifics, but buy me a couple of beers and I'll spill everything). Most of them not only failed miserably, but did so in a way which rendered the environment "toxic" for years to come.

Most of the failures had a few things in common. One was hubris on the part of the principals, the type which says, "we know so much more about the issues than you do; trust us, and when we solve your problems you'll be so grateful."

The second was a kind of tone-deafness which comes from sharing the same foxhole with a few other embattled souls in a nasty fight. I recall listening to a pitch from a very senior corporate executive extolling the virtues of a certain merger. I asked him after his presentation if his company was prepared for the severe public backlash that would result from his proposal becoming public. His answer: "The only people we need to persuade are in the state capitol; we don't care whether the media like us or not."

The third was an attempt to use the complexity of the issue to fog up the real questions, and try to divert the public from the simple, basic question which any reform proposal must answer: What does this mean for my health plan?

I think this is an essential element of the latest meltdown: the proponents of "reform" have, for the past six months or so, walked a very thin and fragile line of credibility, and completely forgot that most people in America already have health coverage, and like what they have, though they are concerned about what might happen in the future. So when regular people with health insurance see big expansion of government programs, subsidies for a bunch of people who already have coverage, a bunch of new bureaucratic and regulatory structures, and truly craven deals with both industry groups and individual lawmakers, they asked themselves, "What does all this matter to my health plan?" And by and large, the answer was either straightforwardly "your costs will go up," or a much more common, and much less honest, "we're pretty sure your costs might not go up quite as fast as in the past, but of course we can't be sure."

People aren't dumb.

Conversely, the reform strategies which succeeded best were those which were best equipped to answer the "What's in it for me?" question. If you can keep people's focus on the benefit to them, and talk straight to them, it's possible to sell common-sense reforms.

I hope Our Friends In Congress and the White House take this to heart as they consider how to re-package and sell a more highly-targeted health insurance reform strategy. The strategy should be based on using existing structures and programs to solve some of the real problems in the private insurance market and in our public health plans.

There's plenty both parties agree upon. Curbing the most egregious practices of the health insurance industry is a natural place to start; it was the first chapter in both the House and Senate bills. And it's hard to envision even the most flint-hearted conservative objecting to the idea of prohibiting insurers from denying or cutting off health coverage for people who are sick. Most of the House and Senate insurance reforms make sense; only insurers will object to them. Without a mandate that everyone purchase their product, there's nothing in it for them. Too bad...

It's also become common knowledge that the small group and individual health insurance markets are highly dysfunctional: highly-concentrated, inefficient and expensive. Small businesses pay 18-20 percent more for health coverage than larger companies do for the same benefits. Most of that excess cost is attributable to the costs of marketing, selling, and underwriting small group business. 25 to 27 percent of small group health premiums consist of administrative costs; for self-employed individuals, up to 40 percent of premium costs are administrative.

The small group market would benefit from a push for administrative efficiency in the health insurance market, especially through strategies which enable small businesses and self-employed individuals to take advantage of the laws of large numbers in shopping for and purchasing health coverage. Both the House and Senate agree on the potential value of insurance exchanges to encourage competition and administrative efficiency in the small group and individual health markets. There is disagreement only over whether an exchange strategy should be national or state-by-state in its scope.

In the spirit of practicality, I'd suggest we start with a series of federal grants to states which wish to establish either public or private non-profit insurance exchanges. They can be set up quickly, within three years, and have a reasonably good chance of impacting markets at the regional and local levels. Let them collaborate, share services, and merge if they want to. The most important thing is to use consolidated marketing, selling, purchasing and administration to put just a little more power into the small group customers' hands.

It's also generally agreed upon that the best way to reach the truly most vulnerable Americans is through an expansion of Medicaid. The House and Senate versions disagree merely as to the matter of degree of the expansion.

Finally, a wild card: giving Medicare the right to negotiate with pharmaceutical companies would probably enable Medicare to fill in a lot of the "doughnut hole" without a massive new subsidy.

All these measures would enable proponents to say quite clearly how health care reform will benefit them. All are based on expansions or refinements of ideas on which there is broad agreement.

The results wouldn't be perfect, but they should help our admittedly imperfect health care system to operate a little better, and make health care coverage a little more accessible and affordable.

Give these reforms five years to work. Once we can be assured that just about everyone who wants to obtain health coverage is able to do so, we may need new policy, such as a national mandate or a nationwide exchange, to fill in remaining market gaps.

I think this sort of package also has the benefit of being able to attract either enough bi-partisan support to pass easily, or enough ire toward Republicans who would be seen as obstructing the enactment of even a modest package of common-sense reforms, that it would give the White House the victory it needs.

But I'm not a Washington insider; I'm just a guy from the grass roots of America.

Premium Increases, Administrative Costs, Pooling Risks...A Little Third-Party Validation

Toiling in the small group health insurance reform vineyards can be lonely work. In feverish debate over the "macro issues," very little attention is usually paid to the realities of the small business marketplace...even though it's widely agreed that small companies pay more money for less coverage, and for fewer of their employees, than do larger employers.

So it's interesting (though not always comforting) to see one's assumptions validated by outside experts. Here are three examples from over the past week or so...from a couple of authoritative sources.

I wrote last week that there was very little in current heath insurance reform legislation which provided much hope that small businesses might expect to see the prices they pay for small group health coverage go down, or even see the rate of increase in their premium costs go down over time.

Last week Robert Pear, the veteran health policy writer for the New York Times, reported on the findings of the Congressional Budget Office (CBO) regarding the Senate's health care reform bill. You can read the article by clicking here:http://www.nytimes.com/2009/12/01/health/policy/01health.html?th&emc=th.

The analysis suggests that, while individuals purchasing coverage could see their premium expenses go down due to the bill's new federal subsidies (at a 10-year cost to taxpayers of over $450 billion), "for most people who get health insurance through employers — five-sixths of the total market — the budget office concluded that there would be little change in their premiums relative to the amounts projected under current law."

While the article touts this as a victory for supporters of the legislation, it just confirms the belief by many small business owners that, for all the furor about reducing health costs, the legislation before the Congress will have the net effect of, at best,costing them no more than if the Congress did nothing.

And the existence of new federal subsidies to enable some individuals to buy coverage 1) won't reduce the actual cost of their health coverage, just push some of the cost on to taxpayers, and 2) will have to be paid for somehow.

But, however nasty the reality of the situation might be, the analysis does validate my sense, from way over here in The Grass Roots Of America, that small business owners looking for benefits from this legislation will be waiting for a long time.

High among the many "opportunities for improvement" for real health insurance reform is a focus on reducing insurer administrative costs which, for small businesses and individuals, can run between 25 and 40 percent of premiums. The complexities entailed in dealing with the patchwork of private insurance plans and procedures is one of the issues discussed by leaders of the Cleveland Clinic in an article in the December 7th edition of Newsweek. Dr. Delos (Toby) Cosgrove, the Clinic's CEO, discusses the difficulties entailed in billing for procedures and wrestling with insurers to get paid. Though Dr. Cosgrove doesn't say so, Newsweek suggests that much of the complexity arises from the fact that "insurers count on rejecting a proportion of claims the first time they're submitted, delaying as long as possible the disbursement of actual cash."

The article says,"...if you're looking for "waste" in the health care system...defined as expenses which do not contribute directly to medical outcomes...a good place to look is the nation's cobbled-together system of competing private insurers." And Clinic Doctor Steve Nissen says simply, "the overhead for private insurers is 29 percent. For Medicare, it's 3 percent. If what's left over is what you can spend on patients, I think 97% is a much better deal."

Even if you don't buy the notion that Medicare administration is only 3 percent of claims costs (and for a number of government-accounting-related reasons, the number is low), the point should be well-taken. Small business owners and individuals are getting screwed on both ends: high administrative costs put a strain on the ability to pay for coverage, and the administrative cost burden gets passed along to hospitals and physicians, which raises the cost of health care for everyone.

As I've repeatedly written in this space, perhaps the only way to get control over administrative costs, and use those cost controls to combat the trend in premium increases, is to take steps to encourage the formation of large purchasing pools, which could negotiate with insurers on behalf of their participating members. With that in mind, it was encouraging to read this op-ed by Paul Starr, A Princeton professor of economics and public policy, who argues that the only real hope for substantive health insurance reform is to move up the reform timetable and take aggressive steps to create larger risk pools, within states if necessary, but preferably on a national scale, through the accelerated development of health insurance exchanges which are contained in both House and Senate bills. Read the article here: http://www.nytimes.com/2009/11/29/opinion/29starr.html?_r=1&emc=tnt&tntemail1=y. Starr says, among other things, "accelerating the timetable of reform ought to be a priority. Although the legislation calls for some important interim measures, the Senate bill defers opening the exchanges and extending coverage until 2014. By comparison, when Medicare was enacted in 1965, it went into effect the next year."

Skeptical small business owners need to hold their elected officials accountable, and have every right to ask the question of how all this sturm und drang will benefit them, specifically. And we can't afford to wait until governments to get around to developing co-operative approaches to reducing the cost of health insurance through group purchasing and administration. We know it works. We know it will be hard. But doing hard things is what entrepreneurs do.

A Bipartisan Small Group Reform Bill?...

Here's the good news: a bipartisan group of Senators managed to craft a small group health insurance reform bill which would enable groups of small businesses and self-employed individuals to form large purchasing pools, eliminate underwriting discrimination against the self-employed, reduce insurer administrative costs, and provide tax relief and other incentives for purchasing health coverage through large group purchasing plans.

The bad news: it was introduced in the waning days of the previous Congress. But it could be a roadmap for bipartisan small group reform as Congress re-convenes next week.

The bill was S2795, with the tortured acronym the SHOP Act (for "The Small Business Health Act Options Program Act"). It was introduced by a bipartisan group of senators as an improvement to S1955, which would have established the ground rules for development of large, association-based Small Business Health Plans, and laid the groundwork for a national market for health coverage. S1955 had the support of many national trade and business associations, but was undercut by objections from the insurance industry, and from local organizations like Chambers of Commerce, which derive a lot of revenue from proprietary health plans and feared the emergence of large national association competitors.

Even though it went nowhere, S2795 contained some very practical and helpful ideas for stabilizing the small group health insurance market. Among its provisions were:
...important underwriting, rating, and access provisions which would provide self-employed individuals with the same protections as small group employers, by making each state's small group underwriting and rating rules the same for the self-employed.
...reducing fears of excessive risk segmentation by forming all interested associations in a state into a single large, statewide association risk pool;
...diversifying the risk pools by encouraging the formation of association groups which would represent a broad base of industries;
...providing a broader range of health plan choices for participating small businesses by pooling risk, enabling participating associations to rely not just on one insurer for coverage of each association's members, but by making all health plans available through the statewide pool available to all the members of all participating associations;
...providing modest tax credits to small companies and self-employed individuals who purchase coverage through the statewide pools, and;
...making the plans available through each statewide association pool subject to each state's existing regulations, while establishing a process for developing a nationwide regulatory framework under which national associations might eventually operate.

Clearly the opponents of S1955, which would have created a national market for small group health coverage through national associations, had a concern that the rapid evolution of a national market dominated by national associations would undercut existing state insurance regulations such as mandated benefits, thus providing national groups with a competitive advantage which statewide or local groups would not have. While arguably the current regulatory environment of 50 separate sets of statewide insurance regulations actually benefits no one but insurers and existing association group plans, S2795 recognized that starting with the aggregation of groups at the statewide level, and migrating over time to a national set of standards, would reduce fights with insurers, state insurance commissioners, and other critical elements of the status quo.

The bill is clearly not perfect, and exactly how some provisions might be made to work is not clear. S1955 was a much more comprehensive (some would say radical) approach to consolidating the market power of small businesses on a nationwide basis. But S2795 was a sensible, thoughtful, and practical approach to beginning the process of small group reform incrementally, and within the existing regulatory structure.

And it had the support of both Democratic and Republican Senators, plus a token Independent. And in the current health insurance reform environment in Washington, how many reform proposals can say that?