A new study says insurance premiums will rise during the next few years, squeezing profits and swelling the ranks of the uninsured.
By Derek Reveron
Hispanic Business® magazine, April 2002
Small Hispanic-owned businesses and their employees are among those who will be hardest hit by rising healthcare costs this year, according to industry analysts and CEOs. HispanTelligence projections indicate that Hispanics own about 1.4 million businesses in the United States, but most of these businesses fall into the categories most vulnerable to health cost increases – sole proprietorships and firms that employ fewer than five people. “Hispanics made an aggressive entry into the world of running small businesses in the last 10 years, and rising [health insurance] premiums could put some of them out of business,” warns Miguel A. Fuentes, president and CEO of Bronx-Lebanon Hospital in New York. A recent study by the National Coalition on Health Care (NCHC) predicts that premiums will increase 20 percent or more for many small businesses this year, and some will be forced to drop coverage altogether. The study concludes that a confluence of trends – recession, rising unemployment, increases in premiums, and the aftermath of the terrorist attacks – is brewing a “perfect storm” that will increase the number of people in the United States who lack health coverage from 39 million in 2000 to 45 million by the end of 2002. Hispanics could suffer disproportionately in these economic crosswinds. A report by the Pew Hispanic Center, an affiliate of the Pew Charitable Trusts, predicts that high jobless rates will force Hispanics to lag behind in the expected economic recovery. Unemployment for Hispanics hovers near 8 percent, compared to about 5 percent for non-Hispanic whites. Since most people receive health coverage through their employment, the jobless become uninsured because they can’t find work or because their new jobs provide unaffordable insurance or none at all. Every day, Mr. Fuentes at Bronx-Lebanon Hospital sees the result of layoffs and cutbacks in companies’ healthcare coverage. “Many jobless people show up in our emergency rooms with no insurance, but we have to treat them,” he says. “The state reimburses 40 cents on the dollar, so we have to be very creative at containing costs and maximizing revenue.” On average, employers’ health insurance costs will rise 34 percent between 2000 and 2002, according to the NCHC study. Many employers will pass along all or part of the increase to employees, some of whom will drop coverage because they can’t bear the marginal cost. In addition, the health industry will face pressure to pull back on servicing small businesses and their employees. “The smaller the company, the less desirable it is to a carrier,” says Evarist Milian, president of Insurance Marketers Inc., ranked number 194 on the HISPANIC BUSINESS 500. “I know some small employers that paid 60 percent of the premium two years ago, but it’s 40 percent now. A lot of manufacturing companies have borderline minimum-wage people who can’t afford the increase.” To concentrate on their most profitable business, insurance companies have cut their commissions to agents and brokers, the traditional channel for small-business policies. Mr. Milian reports that Aetna’s commissions to his company have dropped from 6 percent to 3 percent over the last three years. United Healthcare has revamped its fee structure for businesses with fewer than 25 employees, effectively reducing the payment for such accounts. “Insurance firms are basically giving us disincentives to write small groups,” Mr. Milian says. “Small companies are coming to us asking us to find cheaper health plans, but the choices are extremely limited.” Dino Velazquez finds himself on the receiving end of the healthcare trend. Ten years ago, the CEO of Dothan Chrysler Plymouth Dodge in Dothan, Alabama, dropped his coverage with Blue Cross/Blue Shield because he thought it was too expensive. But Mr. Velazquez later had problems with his new insurer, which declined to pay certain types of coverage. He hunted for another carrier and again found Blue Cross to be his best option, but the company had decided not to insure car dealerships in Alabama. A few years later, Blue Cross changed its policy once again and accepted Dothan Chrysler. The dealership’s insurance rates have skyrocketed since then. Last year, Mr. Velazquez passed along a nearly 20 percent premium increase to his 75 employees. “I had no choice,” he says. “I had to stay profitable, and the increase was too astronomical for us to take the hit.” Every employee paid the increase, in part because Dothan Chrysler’s health plan, while expensive, gets high ratings from industry watchdogs, according to Mr. Velazquez. He hasn’t decided yet how to handle the next premium increase. “I don’t want to think about it yet. I’ll decide what to do when it happens,” he says. Mr. Velazquez suspects that his employees, like himself, pay more because they have little choice. Workers once took affordable and complete health coverage for granted, the CEO notes, and it remains a major perk in job recruitment. “The first thing many people ask when they apply for work here is, ‘What kind of insurance do you have?’ They have been through the drill at companies that have little coverage or none at all,” Mr. Velazquez explains. Most proposed solutions for the healthcare crisis look to thefederal government for guidance. The last time the nation’s capital focused on health costs was 1993, when President Bill Clinton proposed an ambitious framework for federally managed care. The Clinton plan turned into a political debacle. As a result, other Washington politicians learned to shun any comprehensive tampering with the healthcare system. Instead, Congress and the White House have put forth minor adjustments to the system. For example, the Bush Administration and Congress are considering proposals for tax credits to provide short-term health insurance coverage for uninsured workers. If premiums rise as the NCHC study predicts, health costs could gain traction as a political issue during the next few years. But political observers concur that Congress won’t pass meaningful health legislation this year. In reality, only a combination of federal, state, and private-sector initiatives can solve the health insurance crisis, industry executives say. The industry should come up with its own solutions, even if that means putting a cap on certain types of coverage, Mr. Milian believes. Prescription drugs rank high on the list of places to cut costs, Mr. Milian continues. Miguel Fernandez, CEO of Physicians Healthcare Plans, the number 15 company on the HISPANIC BUSINESS 500, agrees, saying “it’s an insult to hard-working Americans that thousands of them, including Hispanics, go across the borders to Mexico and Canada to buy drugs that cost 40 to 60 percent less than in the United States.” Another option to reduce costs would be plans that cover primary-care doctors and specialists, but cut back on hospitalization and pharmacy pay-outs. Physicians Healthcare expects to introduce such a plan for businesses this year. “This can lower costs because hospital expenses and prescriptions account for about 60 percent of premiums,” says Mr. Fernandez. Mr. Milian recommends that some financially squeezed small businesses trim costs by offering plans that cover only health catastrophes. “I tell them to worry about the big hospital bill, and put a large deductible on prescriptions and accept a higher co-payment for office visits,” he says. Along with many other CEOs, Mr. Velazquez plans to weather an economic storm that now appears out of control. “Like any business, an insurance company will do what it must to make money,” he reasons. “If you’re a small company, and you have a few workers with serious health problems, you can take it to the bank that your rates will rise.” --- Rivera Spearheads NY Health Bill In an era of ever-tightening healthcare budgets nationwide, Dennis Rivera has pulled off what many in New York must have thought unlikely: a salary boost for the state’s vast network of health workers. Mr. Rivera, president of the influential hospital workers’ union 1199 SEIU, helped broker the Health Care Workforce Recruitment and Retention Act, signed into law in January. The $1.85 billion initiative, to be funded in large part through a 39-cent cigarette tax hike, provides for salary, training, and benefits increases for New York health workers. With the increase, cigarette taxes in New York are $1.50 a pack – the highest in the nation. Behind-the-scenes deal-making has become commonplace for the 50-year-old Mr. Rivera. His union, which includes nurses and other health workers in New York City, Long Island, and upstate New York, has more than doubled in size since he was first elected president in 1989. With 210,000 members, 1199 SEIU is the largest healthcare union in the United States. Mr. Rivera was re-elected to a fifth three-year term as 1199 president in April 2001. “He has been a forceful advocate for healthcare workers and quality healthcare in New York,” says Robert Hinckley, spokesperson for the state health department.
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