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Bidding good-bye to health-insurance rate spikesSome businesses will be glad to see medical underwriting disappear

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As health care reform reshapes the insurance market, the rate spikes expected to result have gotten much attention.

But for some local small businesses, the rate spikes they're thinking about are the ones to which they're bidding farewell.

"A dependent of one of the people who work at the firm got cancer," says Greg Creasy, president of Grove Miller Engineering Inc. in Swatara Township. "When the next year's premium renewal came, it was 70 percent higher."

Sharon Ryan and Benjamin C. Dunlap Jr. have similar shocks to report, having been handed sudden increases of 46 and 50 percent, respectively.

"It was extremely painful," Ryan says. "It changed our company from being profitable to being not profitable."

Like Creasy's, their insured groups are small. Ryan is president of the Lower Paxton Township information management firm Dasher Inc., which insures about 50 people, and Dunlap is a partner with the Harrisburg law firm Nauman Smith Shissler & Hall LLP, which insures about a dozen people.

The issue, they say, was medical underwriting, in which premium costs are closely tied to health history.

"As long as you have a young or healthy population, you can do quite well, but as soon as somebody gets sick, it's astronomical," says Dunlap. "That's just a matter of luck, and everybody's going to run out of luck eventually."

The three say they understand how medical underwriting grew, as the increasing cost of medical care left companies and insurers scrambling to rein in premiums any way they could. Offering healthy groups better rates based on their likely lower utilization makes sense, they say, and is now a central tenet of the insurance industry.

"It was people making business decisions that were good for them," Ryan says. "But it ended up being not that great for small businesses."

Dunlap says he thinks of it this way: The concept of insurance is based on a large risk pool that diffuses individual exposure. But as the pool shrinks — through slicing and dicing, as in medical underwriting, or via adverse selection — the insurance value dissipates.

"The system works fine in large groups," Dunlap says. "In small groups, to me it's not really even insurance anymore."

Come 2014, medical underwriting will be outlawed for individual and small-group coverage. Dunlap, Ryan and Creasy think that's a step in the right direction, but they don't expect it to solve all their woes — particularly when viewed in the context of all the other changes the Patient Protection and Affordable Care Act is bringing to the health insurance industry.

Kevin Kuhlman, manager of legislative affairs at the National Federation of Independent Businesses, says premiums are generally expected to rise due to the new requirements, mandates and taxes that begin in 2014. After that, specific small businesses may see less year-to-year catastrophic premium spikes due to an employee contracting a costly illness.

"However," Kuhlman says, "that would mean that more businesses must absorb the premium increase and insurance costs would continue to rise."

How it all shakes out for any specific business depends on a lot of variables, says Diane Barber, principal of Capital Region Benefits Inc. in Hampden Township.

"Keep in mind that the current medical underwriting process is very beneficial to small employer groups whose employees are healthy," Barber says. "We do not know how annual premiums will change (or how much the annual premiums will change) under health care reform rules (after Jan. 1, 2014). The hope is, I am sure, that great annual fluctuations from one year to the next are a thing of the past. However, only time will tell."

Sam Denisco, vice president of government affairs for the Pennsylvania Chamber of Business and Industry, points out that there is still a lack of clarity about exactly what the law will require of businesses and that insurance premiums are not predicted to decrease. There would be some value in reduced volatility of pricing, he says, but that's moot if the prices themselves exceed businesses's ability to pay.

Eliminating medical underwriting will have some benefits, Denisco says, but he doesn't see it as a massive enough factor to mitigate all the requirements that health care reform is putting on employers.

Although much remains to be seen, Dunlap says, he's hopeful that, over time, removing medical underwriting will even out the playing field a bit by making small groups part of a larger risk pool and giving them some of the attendant benefits that large groups already enjoy.

"If you look at the big picture," Dunlap says, "the current system is really terrible for small businesses."

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