Throughout the history of the health insurance industry, small businesses have been left out of the decision-making process.  As a result, they are “at the bottom of the food chain” in regard to health insurance.  Today, 62% of the uninsured are in families that own a small business or have a family member working in a small business.  The uninsured problem is mainly a small business problem.

HISTORY OF U.S. HEALTH INSURANCE
 
In 1929, a Dallas hospital began a program that, for $6 per year, provided schoolteachers with coverage for 21 days of hospitalization.  The hospital’s purpose was to obtain a stream of revenue to guard against the ups and downs of the business.  This was the beginning of our hospitalization insurance industry, the “Blue Cross” part of Blue Cross Blue Shield.  

By 1939, twenty-five states had laws enabling hospitalization insurance.  That same year, Blue Shield was organized to provide insurance for physician and surgical services.

In 1940, the U.S. population was 132 million.  Only 12 million had any type of health insurance at all.  Most of those had “hospital expense” policies.  Only 5 million had physician surgical expense coverage.  A mere 3 million had coverage for physician services other than surgery.

In a nutshell, Blue Cross and Blue Shield were started by, owned by, and run by hospitals and physicians to ensure their own revenues.  In order to keep patients from spending the insurance proceeds elsewhere, patients were required to “assign” their benefits under the plans to the providers, and the providers were paid directly by Blue Cross and Blue Shield. 

Blue Cross and Blue Shield companies studiously avoided calling themselves insurers.  They maintained they were “prepaid hospital or medical service organizations”.  Operating as non-profits, they were able to avoid state and federal insurance laws and anti-trust laws. 

During World War II there was a huge shortage of workers, and the federal government imposed wage and prices controls.  Unable to offer higher wages to attract workers, big employers instead used fringe benefits, especially health insurance and pension benefits.  There were no controls on fringe benefits.  As icing on the cake, the IRS ruled in 1943 that the fringe benefits were not taxable income. 

This is how employers ended up in the business of providing health insurance and why it continues.  The massive tax subsidies to employers and employees work mightily against other alternatives, and they work mightily against containing costs in the health care field.

When Medicare was instituted in 1965, Medicare Part A was basically a clone of Blue Cross, and Medicare Part B was basically a clone of Blue Shield.  Instead of softening the impact of the health care monopolies, Medicare institutionalized them.   And, it funded a massive increase in health care spending by substituting government payments for consumer payments. 

For the past forty years, governments have busied themselves with constant meddling in the health care field.  Group policies must have the same prices for a thirty-year-old as a sixty-year old.  There must be an “open enrollment” period each year, where the group must take on all applicants, no matter how sick.  Policies must pay for mandated coverages like wigs for cancer patients.  Emergency rooms must provide treatment for anyone who walks in the door, including hospitalization if required.  Monopolies for hospitals were ensured in most states by requiring “certificates of need” to open a new hospital. 

In 1974, the Employment Retirement Income Security Act (ERISA) made the “self-funding” of health benefits possible for big companies and unions.  ERISA exempted them from almost all the requirements and taxes that are required if there is an insurance company involved.  State “high risk pools” and guaranty funds are paid for with taxes on insurance policies, while the self-funded avoid these costs. 

Throughout the evolution of the health care and health insurance mess the U.S. now finds itself in, there has been at least one common thread.  Small business interests have been locked out of the decision-making.  In fact, they have usually been exploited by the decision-making.

For awhile, small businesses tried to attack the problems by banding together in “association health plans”, groups that would give them bargaining power and a way to centralize administrative costs.  Before these could become very successful, they were outlawed, both at the state level and at the federal level.  It was mainly the big health insurance providers that sought and won that prohibition, but they had a lot of help from big business, unions, and big health providers, including hospitals.     

CURRENT SITUATION

Often the only way a small business can avoid the out-of-control health insurance cost increases that are being loaded onto them is to opt out of health insurance completely, and that is exactly what has happened and continues to happen.

It is not that huge numbers of existing small businesses with insurance are dropping their health insurance.  They aren’t.  Once a business offers insurance, great pains are endured to keep it.

The problem is that new start-up businesses are either avoiding insurance or waiting much longer to take the step of offering it.  In Kansas, about 7,000 businesses with employees start up each year, but nearly that many close down.  Because fewer of the startups offer insurance than the closedowns, the number of uninsured rises.

Whether Kathleen Sebelius or Jim Barnett is elected Governor next month, health insurance issues will be tackled again in 2007.  The new Kansas Health Policy Authority will almost certainly shift its “meddling engine” into first gear in 2007, and it won’t be long before it shifts into second.  Thoughts of high gear and overdrive are very scary. 

This time around, Kansas small business interests must make sure we are a key part of the planning process, working to fix the old problems, avoiding new ones, and looking for solutions for the future.       

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Kenneth Daniel ( This email address is being protected from spam bots, you need Javascript enabled to view it ) is a Topeka small business owner and free-lance writer.  He is publisher of www.kssmallbiz.com, a website dedicated to Kansas small business.

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