Maryland has begun allowing insurers to offer group health plans with limited coverage at more affordable rates to employees of small businesses.

Limited health coverage an option for small firms

August 18, 2005|By M. William Salganik | M. William Salganik,SUN STAFF

Maryland is beginning to offer a lower-cost health insurance policy to small employers, but it is not clear how many will be buying.

Beginning last month, the state permitted insurers to offer policies with limited benefits to small businesses. The policies cover most medical services, but with tight annual dollar caps for each service, such as $150 a year for diagnostic and lab work.

Until now, under a Maryland law reforming small-employer coverage passed more than a decade ago, businesses with up to 50 workers could only buy policies with a comprehensive benefit package set by the state. But fewer than half of small businesses offered health insurance to their workers, and, particularly after several years of double-digit health premium increases, trade groups said a lower-cost policy, with reduced benefits, was needed.

The limited-benefits plan is designed to sell for about 70 percent of the cost of standard policies. "It's a test of how price-sensitive the remaining 50 percent of the small employers are," said Dr. Rex W. Cowdry, executive director of the Maryland Health Care Commission, which regulates small-employer coverage in the state.

Even with lower premiums, said Joseph W. Hopkins 3rd, president of Joseph Hopkins Associates Inc., buying health insurance for his workers would put his business at a fatal disadvantage when it bids for jobs doing archaeological consulting. Developers hire his firm to scan building sites to assure they're not disturbing historical artifacts.

"The bottom line is: If some guy's developing a 10-unit development in Anne Arundel County, and some guy comes in $50 lower than me, he gets the job," said Hopkins, who has one employee currently but adds to his staff as he wins bids for projects.

Michael Kostinsky, who runs Sorrento of Arbutus, a restaurant and pizza shop, said the lower premiums for the limited benefits package might make it possible for him to offer coverage to his 30 workers. The 40-year-old, family-run business did offer coverage until about 15 years ago, he said, when "the cost became prohibitive."

Kostinsky said, however, that he would need to study the limited-benefits package to see whether it provides enough coverage to be worthwhile. The plan, for example, pays $1,000 a day for a hospital stay, for up to 30 days in a year. The average hospital bill in Maryland is $2,006 per day, according to the Health Services Cost Review Commission.

"It might have a nice bow around it," Kostinsky said of the new product, "but what's inside the box?"

The tough trade-offs between costs and coverage have made limited-benefits plans less than a rousing success in other states that have tried them.

"It's like a dog chasing its tail," said Wardell Sanders, executive director of the programs that regulate individual and small-employer coverage in New Jersey. "If you take out the benefits that are driving costs, those are the benefits people use and the benefits people need."

New Jersey started a limited-benefits plan for small employers in 1992. Enrollment peaked at about 5,000, compared with more than 150,000 people enrolled in the standard-benefits plan for small employers.

Now, the limited-benefits package isn't offered at all in New Jersey's small-group market. A new limited plan in the individual market there enrolls 2,192 currently, compared with about 76,000 getting standard benefits, according to Sanders.

New Jersey's experience is hardly unique.

In other states, enrollment in limited-benefits policies has been "very, very limited," said Jennifer Edwards, director of health policy, research and evaluation for The Commonwealth Fund, a New York foundation that studies health issues.

There's no complete count of participation in limited-benefits plans because some states don't require insurers to report enrollments, said Isabelle Friedenzohn, a senior associate at AcademyHealth, a Washington research group.

When she did a report last year attempting to measure how many were enrolled in 11 states with limited-benefits plans of one kind or another, she said, "some were like double digits, not even in the hundreds." Five more states have added limited-benefits plans in the past year.

Maryland's limited-benefits package is not like any other state's, Friedenzohn and Edwards agreed.

Friedenzohn called Maryland's "a new-generation plan." Other states looked to develop a low-cost package by freeing insurers from the obligation to pay for all the medical services usually covered. Such plans were called "mandate-free" or "mandate-lite."

However, she said, this generally reduced premiums by only about 9 percent.

And, said Sanders, the New Jersey regulator, consumers were reluctant to buy policies that didn't include coverage for services such as maternity or prescriptions.

Maryland's plan includes nearly all the services in the comprehensive benefit package, but with stringent dollar limits.

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