One of the more common complaints about insurance for small businesses, and actually for businesses of all sizes, but here we’re talking small ones, is the cost of administration. Premium billing, eligibility, enrollment, card and plan booklet issuance, underwriting and sales all add significant cost to the smaller employers’ already-pricey health insurance tab.
And that’s the main reason fewer and fewer small employers are offering health insurance, and fewer and fewer of their employees are signing up for insurance. As healthy employees decline coverage because they think they won’t need it, the sicker ones stick around, driving up claims costs and furthering the vicious circle that is today’s insurance cycle.
Costco has stepped into the fray, offering its “executive members” on the West Coast slightly cheaper health insurance through its stores. While the rates won’t make you think you’ve entered a time machine and been transported back to the sixties (or 2002, for that matter), the program does seem to be catching on. Over the last three years, membership in the big retailer’s plans has increased by 40% to 15,500 members in Nevada, California, Hawaii, Oregon and Washington.
Considering only 52% of small employers in Oregon offer health insurance to employees (and only 38% of those offer dependents and spouses coverage), Costco’s efforts won’t solve the health insurance coverage crisis any time soon. It does represent an interesting alternative, as the program reduces adminstrative expenses through automated underwriting, enrollment, and eligibility processes.
I tried out the enrollment process, and it is pretty simple and relatively quick. Rates don’t look too bad, if $541.00 per person for a company with an average age of 44 for single coverage aren’t “too bad”. (I can’t believe I just wrote that; we’re talking $6500 in annual premiums for single coverage!!)
What does this mean for you?
A smart business move by CostCo, which will be quite overmatched by macro factors making health insurance increasingly unaffordable for more and more small employers.
Fierce Healthcare gets the nod for tipping me off to the story.

The President’s health care “reform” package has been deader than Social Security reform for weeks, and yet Mr. Bush remains atop his charger, madly taking on windmills wherever he can find them. The latest tilting was spotted at the American Hospital Association meeting in Houston, wherein Mr. Bush once again called for more Health Spending Accounts, malpractice tort reform, increased investments in technology…
Sen. Trent Lott (R MS) was seen yawning.
When Bush’s hometown paper and staunchest supporters both are less than positive about his so-called health care plan, it is truly dead.
Thank goodness.
Meanwhile, many states are taking control of their own destiny. One of the more intriguing efforts is West Virginia’s AccessWV program , which enables high-risk people to obtain insurance at somewhat affordable premiums, and by all accounts is working well. Although the premiums for AccessWV can be pretty high, the program is the best alternative for individuals and families unable to get coverage due to health conditions.

I’m been somewhat skeptical about the Enzi AHIP bill, but in the spirit of fairness wanted to carefully evaluate the potential of the bill to address its main driver – the lack of affordable health insurance.
I’m even more skeptical now.
The growing trend to consolidation in the health insurance industry would likely be accelerated by the bill proposed by Sen. Mike Enzi (R) WY. Enzi’s bill would, among other things, strip out much of the states’ power to regulate health insurance, establish a uniform benefit plan, and end many of the restrictions on insurance underwriting. (this last will actually serve to increase the number of uninsured as they will not be able to meet strict underwriting guidelines)
Proponents of Enzi’s bill claim that it would enable small businesses to pool their buying power, thereby getting better deals from insurers. While that makes sense in a free market, the market for health insurance is anything but free. In fact, with most local markets dominated by a single carrier, I’m not clear as to how group buying will help any employer gain any pricing power.
The health insurance market has become an oligopoly, generally defined as a market where 4 or fewer sellers control more than 40% of the market. In reality, a study released by the American Medical Association and supported by a newly-released GAO report, clearly shows we have passed this benchmark and are now approaching monopoly status in many markets.
Of the 294 metro areas studied by the AMA, 56% were dominated by a single insurer who controlled over 50% of the market. In essentially all of the 294 markets one insurer had market share of at least 30%.
Nine states are dominated by a single health plan, one of the Blues, with over 50% market share. And this trend has accelerated considerably over the last four years.
My sense is that Enzi’s bill would do little to address the core problem of health care coverage – it is just unaffordable for many small businesses and their employees. Enzi et al seem to think that buying power alone will help solve the problem; clearly current market conditions make that argument moot.
What does this mean for you?
Yet another opportunity to study the process of furniture arrangement on the Titanic.