Patrick Casinelli of Cavignac & Associates hopes the new plan will offer protections for employers whose workers waive coverage. (photo/alandeckerphoto.com)

When Gov. Schwarzenegger proposes that California employers must provide health insurance for their employees — part of an ambitious plan to mandate insurance for the state’s 6 million uninsured people — or face fines, a cry of outrage and concern ought to follow. Insurance agents’ phones should ring off the hook with calls from employers braced for high costs that could threaten their ability to provide jobs.

But it isn’t happening, say insurance brokers who specialize in employee programs.

“Our clients are desensitized because they’ve been down this road a number of times over the past nine years,” says Mike Lutosky, who specializes in health care plans with Westland Insurance Brokers. “We all agree with the core issue that we need to do something about the uninsured, but we’re waiting to see the details.”

Agreeing is Patrick Casinelli, a broker who specializes in employee benefits plans at Cavignac & Associates.

“People won’t get fired up until it gets more concrete and more immediate,” Casinelli says. “The proposal is one of a series of proposals that started during the Clinton administration and employers are used to hearing it. Our clients are waiting to see what the final plan will be.”

While the proposal sounds like big news, Betty Jo Toccoli, president of the California Small Business Association, says it really represents a shift in thinking rather than a significant change. “Now is the best chance for this to happen,” Toccoli says. “I’ve seen nine different California proposals in the last 20 years, with good in all of them and things that scare us to death in many of them.”

The governor’s proposal was spurred in part by the Dec. 31 expiration of an existing plan established so that businesses with between two and 50 employees could buy insurance in a state-sponsored risk pool. The Health Insurance Purchasing Cooperative allowed companies to purchase as a large group with certainty and guaranteed renewal. Just two companies — Kaiser Permanente and Health Net — remained after Blue Shield became the eighth insurer to withdraw in August. The pool ended on Dec. 31, 2006, with 116,000 people relying on it for coverage when it shut down.

“We had so many things required to be included in the policies that the premiums became unmanageable,” Toccoli says. “I think we need a bare-bones, calamity coverage policy that employers can add things like dental and vision plans if they can afford it.”

That’s exactly what Schwarzenegger proposed: a minimum of health care coverage with a $5,000 deductible for each worker. The trick, Toccoli says, is getting the insurance industry to set affordable premiums for small businesses or creating a large enough risk pool that small businesses can access.

Small businesses are viewed as expensive liabilities by the big — and affordable — insurance companies, Toccoli says. Health insurance rates continue to be the fastest rising rates, agents say.

“They view us as the big risk, as being full of people who will require expensive care — they don’t know it’s true but they believe that,” she says. “We won’t be able to create an affordable statewide pool for small businesses alone.” And, she says, it’s hard for small businesses to join insurance pools with larger businesses to spread the risk. “Cal-PERS won’t let us buy in,” she says. “Big business isn’t inviting us to participate. We need a risk pool that is acceptable to insurance companies or we won’t be able to afford the premiums anyway.”

Schwarzenegger’s plan, already lambasted twice on the Wall Street Journal’s opinion pages, does not require employers to cover spouses and families. Instead, recognizing that “an employer mandate will not achieve universal coverage,” the plan would create a variety of subsidies and public programs that an insured worker’s family may qualify for.

Businesses may well benefit from the governor’s proposal, says Barney & Barney principal emeritus Dan Murphy. He believes premiums could go down, particularly if Medi-Cal payments to health care providers increase, as proposed.

The 4 percent penalty for not providing coverage is what will most impact employers, says Dan Murphy of Barney & Barney. (photo/alandeckerphoto.com)

“There’s been tremendous cost shifting to people who pay for private insurance, as much as a 17 percent surcharge to help pay for the costs of treating people who are uninsured or whose Medi-Cal coverage doesn’t pay the cost of insurance,” Murphy says. “If Medi-Cal would raise reimbursements to Medi-Care levels, premiums could very well decrease.”

Murphy says most employers are already providing some kind of health care coverage.

“We’ve found that 98 percent of employers with more than 200 employees are already providing it, that 94 percent of businesses with between 50 and 200 employees have health insurance and that 80 percent of employers with between 10 and 49 employees offer some kind of health care plan,” he says. “That means that the 20 percent of businesses that don’t offer coverage will be adversely impacted.”

Under the governor’s proposal, employers who don’t offer coverage face a 4 percent penalty.

“They’re calling it an ‘in-lieu fee’ that will go into a fund to subsidize insurance coverage, but it’s a fine,” Murphy says. “That’s what will impact employers most, those with 10 or more employees.”

But for the large portion of small businesses that provide coverage — about 80 percent — making the other 20 percent insure their employees is to their benefit, he says.

“Right now, employers paying premiums are subsidizing the health care costs of people who aren’t insured, and that means they may be subsidizing their competition,” Murphy says.

About 78 percent of his clients’ employees are eligible for coverage, Murphy says. The rest are part-time workers, seasonal employees or in the first few months of a job, before their access to the company plan kicks in.

About 86 percent of employees who are offered health care benefits take it, Murphy says. Most of the remaining have coverage through spouses — and many companies Murphy works with require proof that employees have coverage before the employees can opt out, he says.

Mike Barone of Intercare Insurance Solutions questions whether those on the minimum coverage plan would have the resources to meet the deductible. (photo/alandeckerphoto.com)

Insurance companies require businesses to enroll at least 75 percent of their workers and to cover 75 percent of the workers’ cost as an underwriting policy, says Mike Barone, president of Intercare Insurance Solutions.

Increasingly, employers are offering a range of health care plans and telling their employees they’ll pay 75 percent of the premium for the least expensive plan and the employee can choose from the range and make up the difference,” Barone says.

Barone called the governor’s plan “very inclusive,” pointing to the proposal that California law require people not eligible for state subsidies and programs to carry a minimum plan that has a $5,000 deductible.

“I like the idea of a minimum coverage plan, but you have to wonder where people on that plan will find the $5,000 to pay the deductible,” Barone says. “If we’re serious about creating Health Savings Accounts, money that goes to the savings accounts has to come from pre-tax earnings. And we want to be sure that deductible is paid or it will become another form of cost-shifting back to the private insurers.”

Insurance agents say the bigger dilemma is what employers will do about employees who won’t sign on for health insurance they have to help pay for.

“Of the 6.5 million who are uninsured, many made a decision to forgo health insurance even when they can afford it,” says Lutosky, a healthcare insurance specialist. “I’d like to see something in the governor’s plan that addresses people who opt out of the system.”

Casinelli, of Castignac & Associates, agrees with that worry.

“How do we cover employees who don’t want to participate if they have to pay 25 percent to 30 percent of the cost? Is it fair to make the employer cover that or face fines? If someone waives coverage, will the governor be satisfied? Those are the questions that bother me,” Casinelli says. “When the employer has done their part and then the voluntarily uninsured person gets hurt or sick, who should pay for that?”

More than anything, insurance agents are getting ready to educate their clients about the new proposals, Casinelli and Lutosky say.

But, Lutosky says, the public — health care consumers — need some education too.

“None of us are prepared to deal with the reality of the cost of health care, and many consumers don’t even know how expensive it is because they are shielded by insurance,” Lutosky says. “With the amazing new treatments and technologies we all want come new and higher costs. The key issue is that there’s just not enough money in the system.”

Both Toccoli, as president of the CSBA, and Murphy are meeting with the governor to refine the latest proposal.

“If we have 6 million people who need insurance, that’s a coverage pool larger than Cal-PERS,” Toccoli says. “We ought to be able to create a very big risk pool that employers could purchase through to provide at least a bare-bones policy for every worker.”