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Small Business Owners: Lobby For Strong State Insurance Exchanges

Kudos to Casey Coonerti Protti, owner of the Bookshop Santa Cruz in Santa Cruz, Calif., for penning a lucid and insightful BNET post on the health insurance dilemma for small employers. As Protti points out, the Affordable Care Act does not provide tax credits to businesses like hers that employ more than 25 people; yet her operation is nowhere large enough to get the insurance discounts that her chain-store competitors win because of their size. The best solution for Protti and the many other business owners in her position is to do something that the U.S. Chamber of Commerce would never propose: join together to force their states to create effective health insurance exchanges.

Of course, some Republican-run states like Florida have no interest in the kind of health insurance exchanges envisioned in the federal reform legislation. They're still stuck in "replace-and-repeal" mode. But in California, where Protti lives, the legislature recently passed a bill establishing a powerful insurance exchange that would be able to bargain on rates with insurance companies and would require standard benefits that would give purchasers an apples-to-apples comparison among health plans that charged different prices. Gov. Arnold Schwarzenegger, who has been traveling abroad recently, now has to decide whether to sign the bill.

By being able to negotiate rates -- something the insurance lobby fought hard against -- the new California exchange would be able to give the 3 or 4 million individuals it's expected to enroll the same bargaining clout that a large corporation has. They can also receive federal subsidies if they meet the income requirements. Many of the people who will join the exchange will be employees of small companies like Bookshop Santa Cruz. Under the Affordable Care Act, firms that employ up to 100 workers will be eligible for the exchanges; Protti employs 35.

I've been critical of the idea of having an exchange bargain with insurers if the carriers are not required to offer the same kind of policies inside and outside of the exchange. The reason is exemplified by California's own history: A state-sponsored small-business purchasing coalition known as the HIPC went out of business several years ago, partly because insurers undercut it by offering lower-cost plans outside of the buying cooperative.

Although there was talk of requiring the same policies inside and outside of the new California exchange, the final version of the bill apparently does not include such a provision. But the last word on this topic may belong to the U.S. Department of Health and Human Services. HHS is considering how restrictive it should make federal waivers that will allow insurance companies to offer less than the minimum level of benefits mandated by ACA. The law permits the carriers to offer low-benefit plans, aka "mini-plans," if they can show that adding more benefits would lead to significant premium increases or force employers to drop coverage.

If HHS takes the less restrictive route, mini-plans could lure many young, healthy prospects out of the exchanges, leading to rate increases for those who remained. A more limited application of the waiver process would be favorable to the exchanges, allowing them to use their muscle to get lower rates. At this point, it's unclear whether the waiver provision applies after 2014. If it doesn't, the exchanges might be born on an even playing field. But I wouldn't count on that, considering the likelihood of a Republican sweep this November.

In a best-case scenario, California and like-minded states could construct effective exchanges that would substantially lower rates for companies like Protti's. So now is the time for small employers to mount the barricades and demand action from their state legislators, whether the Chamber of Commerce likes it or not.

Image supplied courtesy of Flickr.

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