You asked how much a small business owner in Connecticut pays to provide health care insurance to his employees if he purchases the insurance (1) through the Municipal Employee Health Insurance Program (MEHIP) and (2) not through MEHIP.

SUMMARY

A small business owner’s insurance premium for its employees varies based on several factors, including the employer’s workforce demographics, which insurance company writes the coverage, and the employer’s plan selection. Demographics include, for example, (1) age, gender, and family composition of the employees; (2) employer industry classification; and (3) the number of employees. Because of the numerous variables and the lack of such specific data collection generally, it is difficult to provide a cost comparison of insurance purchased through MEHIP versus not through MEHIP. We can provide the average cost of insurance (1) for a MEHIP participant (which includes small employers) and (2) for a small employer in Connecticut (regardless of how it obtains insurance).

The average cost of insurance for an employee enrolled in an insurance plan obtained through MEHIP, as of March 2005, is $ 7,252 a year, according to the comptroller’s staff. The average cost of insurance for a small employer in Connecticut was $ 3,944 in 2003 according to the Agency for Healthcare Research and Quality (AHRQ). According to information from the Connecticut Business and Industry Association (CBIA), the current cost estimate is between $ 4,654 and $ 4,930 per enrolled employee. One possibility for the difference between the MEHIP average cost and the AHRQ/CBIA average cost is plan selection. It is possible that the insurance purchased through MEHIP contains better benefits (e. g. , covers more services at higher rates of reimbursement) than plans obtained through other means. Better benefits cost more.

As general background, state law requires insurers to develop insurance premiums for small employers using a modified community rating method. This means premiums can vary by small employer based on certain characteristics of the employer’s employees. PA 05-238 permits insurers to develop insurance premiums for certain small employers differently (see below).

MEHIP

Connecticut law authorizes the comptroller, with the attorney general’s and the insurance commissioner’s approval, to arrange group hospital, medical, and surgical health insurance for (1) small employer groups, (2) municipalities, (3) nonprofit corporations that do business with the state, (4) community action agencies, (5) personal care assistant associations, (6) individuals eligible for a retirement benefit from the Connecticut municipal employees’ retirement system, and (7) federally qualified nonprofit corporations that (a) receive any public funding or (b) have federal 501(c)(5) tax-exempt status (e. g. , labor unions). The definition of a municipality includes towns, school districts, taxing districts, fire districts, housing authorities, regional planning agencies, transit districts, regional telecommunications centers, tourism districts, and other entities. This program is referred to as the Municipal Employee Health Insurance Program or MEHIP (CGS § 5-259). For more information on MEHIP, see OLR Report 2005-R-0693 (attached).

The average cost of insurance for an enrolled employee insured through MEHIP, as of March 2005, is $ 7,252 a year, according to the comptroller’s staff. The average cost for a covered person, which includes enrolled employees, spouses, and dependents, is $ 4,163.

SMALL EMPLOYER

In Connecticut, a business owner is a small employer for insurance purposes if the business employs a group of 50 or fewer employees. This includes a self-employed individual (CGS § 38a-564(4)). The Connecticut Insurance Department lists commercial insurers that have small employer policies on file with the department on its web site, http: //www. ct. gov/cid.

We had difficulty finding a source for the average cost for group health insurance for a Connecticut small employer that obtains the insurance without purchasing it through MEHIP. We were able to locate data for the cost of insurance in Connecticut based on firm size (e. g. , under 50 employees, 50 to 100 employees), but the data includes insurance purchases through whatever available means (e. g. , through MEHIP and not through MEHIP).

The average cost of insurance for an enrolled employee of a Connecticut business owner with less than 50 employees in calendar year 2003, regardless of the avenue taken to purchase the insurance, was $ 3,944, according to the Agency for Healthcare Research and Quality’s most recent Medical Expenditure Panel Survey – Insurance Component (MEPS-IC). The MEPS-IC defines “enrolled employee” as a person on the payroll and enrolled in a health insurance plan offered by the employer. The term excludes (1) temporary and contract workers and (2) covered dependents. (MEPS-IC does not collect information for covered persons. )

Based on input from their members, CBIA believes we should increase the 2003 data by between 18% and 25% for a present day estimate. This would bring the annual cost of insurance for a Connecticut small employer to between $ 4,654 and $ 4,930 per enrolled employee.

MODIFIED COMMUNITY RATING

Connecticut law requires insurers to use modified community rating when developing premiums for insurance plans sold to small employers (CGS § 38a-567(5)). Modified community rating’s developing a community rate (i. e. , a uniform rate for all employers in a certain geographic location) then adjusting it for case characteristics specific to that particular small employer.

“Case characteristics” means demographic or other objective characteristics of a small employer’s employees, including age, gender, family composition, location, workforce size, industry classification, and administrative cost savings resulting from administering an association group plan or a plan written through MEHIP (CGS § 38a-564(27)). Insurers issuing health insurance policies to Connecticut small employers are prohibited from varying rates based on health factors, but may consider certain group demographics.

For example, therefore, it is reasonable to expect that the insurance premium charged for a group of young, male employees working in a non-dangerous industry is less than that for a group of women of child-bearing age or older employees in the same industry. From an actuarial perspective, the insurance company expects the group of young men to submit fewer insurance claims than the others. Since the young men present a lower “risk” to the insurance company, their employer may be charged lower premiums for the insurance plan purchased. Actual claim history does not come into the equation.

PA 05-238

PA 05-238 excludes, under certain circumstances, small employer groups purchasing health insurance through MEHIP or an association group plan from the modified community rating law at the comptroller’s or association group plan administrator’s option. To use this option, (1) the MEHIP or association insurance plans offered or issued must cover small employers’ employees as a single large group and insure at least 10,000 individuals and (2) each small employer must be offered the same premium rates for each individual and dependent (i. e. , rated using a pure community rating methodology). Thus, if the conditions are met, the insurer would develop a premium for the large group based on the claim history of the entire group, instead of the specific characteristics of each small employer.

The act also permits the comptroller, at her discretion, to let small employers participating in MEHIP to self-insure. Under such an arrangement, a small employer funds its own health benefit plan instead of entering into an insurance contract. Presumably one of the insurance companies offering plans to MEHIP would administer the self-insured plan.

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