Program offers smallest employers relief from rising cost of policies

The Health Connector board voted to take over the administration of health insurance plans for roughly 17,000 small businesses, a task that had been handled by a private company, Worcester-based Small Business Service Bureau.

The new program is aimed at the smallest of small businesses, those that employ between one and five workers. There are roughly 40,000 such employers in Massachusetts that offer health insurance to their workers, according to state figures.

Currently, about 17,000 of these businesses pay the Service Bureau $35 per employee each month in administrative costs. Under the new program, the businesses will pay the Connector $10 per month, while insurance companies that cover workers through this program will pay the other $25 in administrative fees to the Connector.

The Connector estimated that the new arrangement would save each business in the program about $300 annually per employee.

The Connector also projected that the program will help to more than double the number of customers who buy health insurance through its exchange, from roughly 23,000 now to over 50,000 when all of the small businesses are transferred to the program.

This boost in enrollment will help the Connector to eventually make a profit on its exchange program, said chief financial officer Patrick Holland. Right now, the Connector is losing money.

The first 1,200 businesses would be transferred this April, with the remaining 15,800 shifted by April 2011.

Jon Hurst, president of the Retailers Association of Massachusetts, called yesterday’s action a “good-faith effort’’ by the state to deal with one of the most pressing problems facing small businesses, but he said it falls far short of the real relief needed.

“The state can go much further in actually giving small businesses and the Connector, or other cooperative ventures, the ability to group-buy and negotiate with insurers and try to bring new competition into the marketplace,’’ Hurst said.

He said many of his 3,100 members are facing, on average, 22 percent increases this year in their health insurance premiums, increases that, he said, would be significantly reduced if the state allowed small businesses to band together in cooperatives and negotiate lower rates with insurers.

In an e-mailed statement, Governor Deval Patrick said the new venture represents an “important first step’’ in providing health insurance premium relief for small employers.

“Finding solutions for this challenging issue is one of my top priorities,’’ he said. “There is still much work to be done, but we are certainly headed in the right direction.’’

Board member Ian Duncan voted against the program, the only board member to do so, saying it would ultimately force thousands of other small businesses that aren’t in the program to shoulder steeper costs.

Duncan, an actuary and president of a Connecticut firm that does cost analysis for health and insurance companies, said insurers would end up shifting the new $25 fee they will have to pay for each new customer to other subscribers.

“The [insurers] will find a way to bill this, or some piece of this, onto their rates,’’ he said. “I don’t think we, as a board, debated and studied this enough.’’

Holland, the Connector CFO, disputed that premise, saying the administrative efficiencies insurers gain by not having to deal with so many small businesses individually will more than make up for the new $25 charge.

Kay Lazar can be reached at klazar@globe.com.