Bill seeks insurance option for firms

Such an arrangement, they say, would give them big-company-style clout to bargain for better prices and pass the savings on to their workers, who face plans they cannot afford.

But in order for small businesses to negotiate as a group, a state law must be changed. And that is not an easy venture.

Representative Steven M. Walsh, a Lynn Democrat, filed legislation that would allow businesses with 50 or fewer employees to form a nonprofit consortium, similar to the state's Group Insurance Commission. The commission is a quasi-state agency that buys and administers health insurance for state employees and, more recently, for local employees whose municipalities join the pool.

Walsh said he has spent the past year crisscrossing the state canvassing small-business owners about their chief concerns. Out-of-control health insurance costs, he said, topped nearly every owner's list.

"We looked at who may have been left out, or may not have been a winner, in the state's healthcare reform law," Walsh said. Overwhelmingly, he concluded, it was small businesses.

Roughly 87 percent of Massachusetts businesses are em ployers with fewer than 20 workers, state figures show. That translates to about 724,000 workers.

Walsh's legislation - pending before the Legislature's Financial Services Committee - is drawing heat from some business and insurance groups that say it could create more problems than it solves and that it undermines hard-fought accomplishments of the state's 2006 healthcare overhaul law.

A primary goal of the law was to extend health insurance to nearly every resident and to make it more affordable. To do that, the state combined two insurance markets: one that served small businesses and one that catered to individuals who purchased coverage on their own because they didn't have access to employer-provided care and didn't qualify for state-subsidized insurance.

The merger eased insurance rates, on average, about 15 percent for individuals, but boosted rates for small businesses by about 1.5 percent, according to state data.

Now the trade association that represents most health insurers in Massachusetts said changing the rules would, again, increase costs for individuals and for small businesses that don't join the proposed new pool.

How? Insurers calculate rates based largely on the ages of a business's workers, with lower prices for a younger workforce, which tends to be healthier and need less care. If small businesses with younger workers join the new group pool, opponents said, it would leave an older workforce in the other small-business market, leaving them vulnerable to higher overall rates charged by insurers.

"There are other ways to help small businesses," said Dr. Marylou Buyse, president of the Massachusetts Association of Health Plans.

Buyse and the Associated Industries of Massachusetts, the state's leading business trade group, are instead backing a proposal that would make it easier for small-business owners to tap a state-subsidized plan, known as the Insurance Partnership, that would contribute toward employees' monthly insurance premiums.

That idea isn't winning many takers among the 3,000-member Retailers Association of Massachusetts, nor the Massachusetts Chamber of Business & Industry, which back Walsh's proposed legislation. They say that helping small businesses compete with bigger companies for cheaper insurance rates - instead of relying on another state-funded program - is a better way to go.

"We are now how many years into healthcare reform, but we have done nothing to ensure the little guy is getting a fair deal versus the big guy," said Jon Hurst, president of the retailers association.

The state's Connector Authority, which oversees many of the new health insurance laws, did launch a group health insurance pilot program in February for small-business owners to test market demand. So far, 30 employers have signed up, said Connector spokesman Richard Powers.

"There is no hard and fast deadline when we will launch beyond the pilot phase," Powers wrote in an e-mail.

The battle between business groups is being fought against the backdrop of past controversy.

In 1991, the state passed a law that allowed small businesses to buy health insurance from certain trade associations - and it granted those associations some special rights, such as conducting medical screenings and denying or limiting health coverage to those seen as at higher risk for illness.

That angered other small businesses, which were not granted such exemptions from state insurance law and ended up with comparatively higher costs, creating havoc in the market.

Citing those problems, state regulators ended that law in 1996. In 2005, lawmakers shot down a modified proposal to bring it back.

Now, critics of Walsh's legislation say his bill would bring similar problems back. But this new proposal offers no special exemptions, Walsh points out, and clearly gives the insurance commissioner authority to write regulations governing establishment and oversight of this new "small-business health plan."

Meanwhile, some small-business owners are eager for quick relief.

"I am fighting every year to keep my rate increases below double digits," said Eric Michelson, co-owner of Michelson's Shoes in Lexington and Needham, an 80-year-old family business. "Why can a large corporation negotiate a cheaper rate and small groups are forbidden? It's not a fair and level playing field."

After an 18 percent increase in health premiums last year, Michelson swallowed hard this year and made a decision that many other small employers say they increasingly are being forced to make: He chose a plan with smaller upfront increases to the employer but eye-popping out-of-pocket costs to his workers.

For Michelson and his 22 employees, some with the company for 30 years, that meant choosing a plan with a $1,000 yearly deductible to be paid by the employee before insurance will cover medical tests and other procedures. To cushion the blow this first year, Michelson has offered to help pay his employees' deductible.

Kay Lazar can be reached at klazar@globe.com