In the discussion on healthcare reform, there has been a lot of talk about small businesses and their ability to negotiate insurance cost and how healthcare reform will impact them.  Their is a talk that the businesses with payroll less than $250K might be exempt from the mandatory requirements of the healthcare reform proposals.

We at THT have covered in previous articles that businesses in general and small businesses in general must be free from the burden of health insurance.  It is important to note that small businesses are one of the biggest employers and they run lean operation.  With that, they need to focus their energy on growing the business and not get bogged down by the logistics of healthcare negotiations.

They already have disadvantage of economy of scale.  They do not have the negotiation power of a big company and secondly, their insurance pool is small.  So any person getting seriously ill leads to sudden jump in premiums for everyone else. 

In addition to premium hikes, many insurers simply dump them from their program.  It is called purging: a dirty word. Wendell Potter, formerly the director of media relations for CIGNA (CI), says that’s exactly what health-insurance companies do when an employee at a small business is unexpectedly hit with a sudden, and expensive, illness: The insurance company “purges” the small company from their rolls.

Joshua Kendall did an article on small business purging at Business Week.  Here are excerpts form that:

•  Health-insurance companies “dump small businesses whose employees’ medical claims exceed what insurance underwriters expected. All it takes is one illness or accident among employees at a small business to prompt an insurance company to hike the next year’s premiums so high that the employer has to cut benefits, shop for another carrier, or stop offering coverage altogether—leaving workers uninsured. The practice is known in the industry as purging.”
•  Practice of intentionally making health insurance unaffordable for a small company may seem shocking, Len Nichols, a health policy analyst at the Washington nonpartisan think tank New America Foundation, isn’t surprised in the least. Of purging, he says, “It’s always gone on. It’s the way business is conducted.”
• A small company biotest laboratories saw its premium jump by 7)% in one year after one of its employee needed a cancer treatment
• In about a dozen states, where some form of “community-rating” prevails, regulations prohibit insurance companies from setting premiums for firms with 50 or fewer employees based on workers’ health status, forcing insurers to spread risk among their smaller accounts. But in roughly three-fourths of the country, “rating bands” allow for considerable flexibility in pricing. In states with “loose rating bands,” such as Texas and Nevada, one small firm can be charged nearly 70% more than another.
• According to a 2008 survey by the Government Accounting Office, the median market share of the largest carrier in the small group market is 47%; in Alabama, one carrier insures 96% of all small businesses. As Senator Olympia Snowe (R-Me.), the ranking member of the Committee on Small Business & Entrepreneurship, which commissioned this study, notes: “Such consolidation is an alarming trend.”

 THT believes as stated before that for American economy to be competitive, the small businesses and entrepreneurs should be given an opportunity to thrive.  And for that reason alone, creating a national insurance pool is a great idea.  Businesses can be free to innovate and succeed and not worry about negotiating prices for something that is not their core business activity.