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Businesses Split Over SustiNet

Small firms see savings; large firms see risk

By Greg Bordonaro

July 17, 2011

A major divide is forming within the business community over the sweeping health care reform law being proposed in Connecticut.

The plan, which was recently unveiled by SustiNet board members, calls for sweeping changes to the state’s health care system and ultimately establishes a public option open to all Connecticut residents, including businesses.

That has created sharp reaction from Connecticut Inc.

Some small business owners are throwing their support behind the measure, saying a public health plan that competes with private insurers is the only way they will be able to find affordable coverage for their workers.

But the state’s largest business lobbying groups, including the Connecticut Business and Industry Association and the National Federation of Independent Business, oppose the idea citing concerns about cost, among other things.

“Given the uncertainty surrounding the risk profiles of the people who would be attracted to the plan, I think it would put the state budget at great risk,” said Eric George, a lobbyist for the CBIA. “They are adamant to have a state-run public option and I think that is a very poor policy decision for Connecticut.”

But Kevin Galvin, chairman of Small Business for a Healthy Connecticut, a network of small businesses that support SustiNet, said the lack of affordable and quality health insurance coverage, especially for companies with fewer than 10 workers, requires major changes in the marketplace.

And he said new competition for private insurance companies is the answer.

“If you are an individual policyholder or small business owner, you don’t have much choice right now,” said Galvin, who owns his own maintenance repair shop in West Hartford. “For small businesses to be competitive, they need to be able to insure people. And if you bring down health care costs and improve quality you will get small and mid-size businesses to hire more people. I think SustiNet is the most palatable approach to do that.”

Small businesses in Connecticut and across the country are facing increasing health care costs that are making it difficult for them to do business, especially in a down economy. Many businesses are being forced to cut back on how much they contribute to company health plans or void their coverage altogether, making them less competitive in the market.

The SustiNet plan was developed by an 11-member board of directors that includes Lt. Gov. Nancy Wyman and state Comptroller Kevin Lembo. The board was established by legislation passed by Democratic lawmakers in 2009 in response to the rising cost of health care and to increase access to care.

Connecticut’s state government spends about $8 billion annually on health care for state employees, retirees, Medicaid recipients and other populations.

The central component of the plan includes establishing a self-insured state insurance choice for municipalities that would gradually be expanded to private employers, small businesses, nonprofits and households.

That option would be offered both inside and outside the health insurance exchange that Connecticut is required to setup by 2014 under the new federal health care reform law.

The plan also calls for payment reforms including implementing the medical home model concept and linking provider payments to performance; expanding the state’s Medicaid program; and investments in electronic health records.

Board members say SustiNet would be a cost saver for small businesses, in some cases by allowing them to drop coverage for their workers who would then be able to enter the new state plan.

The proposal estimates small firm insurance coverage in the state would decline by up to 10 percent in 2017. That in turn would save small businesses with 50 or fewer workers about $380 million to $400 million in premiums.

Small employers that keep coverage could also benefit from tax credits available under the federal health care law, and the possibility that SustiNet will slow cost growth. In an optimistic scenario, it is projected that SustiNet slows cost growth by 1 percent per year.

Among larger firms, the effects of reform are estimated to be negligible. In 2017, total costs for companies with more than 100 employees are projected to decline by roughly $50 million to $70 million, or less than one-half of 1 percent.

SustiNet would become a major player in the insurance industry.

According to projections, by 2017 the SustiNet health plan would provide coverage for up to 30 percent of companies in the state’s small group market and up to 10 percent of businesses in the large group segment.

George said he supports some components of the plan — like investing in wellness programs and electronic medical records and raising Medicaid reimbursement rates to providers.

But he said cost is a big and unanswered concern, especially with the state already facing a $3.5 billion budget deficit.

SustiNet board members said their proposal could potentially save the state more than $226 million a year. But most of the projected cost savings, which were based on modeling by MIT economist Jonathan Gruber, would come from money allocated under the federal health reform law and assumptions that SustiNet would help lower health care costs over the long term.

But George said the proposal doesn’t take into account up-front or ongoing costs. For example, the plan calls for the establishment of a quasi-governmental agency to administer SustiNet, which would require staffing.

The level of benefits offered by SustiNet also have not been defined, so it’s difficult to gauge those costs as well, George said.

In addition, George said creating a self-insured plan that is available to anyone, creates uncertainty over who is going to join the pool and the types of medical problems they will bring with them.

“The state is going to be paying medical claims but you don’t know who is coming into the system,” George said. “If those risks are poor and claims are high you are going to have a hard time paying for it.”

Galvin said that it is hard for the CBIA to have an unbiased opinion on the proposal since CBIA is also an insurance broker. CBIA Health Connections sells insurance for Connecticare and Aetna through its exchange.

Beyond that, Galvin said, creating competition and allowing small businesses to combine their purchasing power is the key.

“There is nothing forcing insurance companies to get better with pricing and quality of product,” Galvin said. “Federal reform didn’t address the cost issue.”

The SustiNet proposal now turns into a political debate as it gets turned over to the state legislature. Many Democrats — the majority party in both the House and Senate as well as the party of Gov. Dannel Malloy — have expressed support for the plan. Republicans, including Senate Minority Leader John McKinney of Fairfield, have expressed concerns over the costs of the plan.