Iowa’s smallest employers would get a cushion to soften the blow of large health insurance claims if a plan proposed by Gov. Tom Vilsack becomes law.

In his Condition of the State address, Vilsack asked the Legislature to consider creating a state-funded reinsurance program that would reimburse small businesses 50 percent of their largest health claims. The program would require businesses that employ up to 25 people to participate in the reinsurance pool, which would reimburse employers for half the cost of individual claims above $25,000 and up to $100,000.

An estimated 12.2 percent of working adults in Iowa, or more than 168,000 employees, are uninsured, according a study released in May 2005 for the Robert Wood Johnson Foundation by the University of Minnesota. Nearly 15 percent of Iowa’s adult population, about 260,000 people, did not have health insurance in 2003, according to the study. Employers that do provide health coverage have in some cases had to decrease the portion of the premiums they pay or drop their policies altogether after several years of consecutive double-digit premium increases.

John Gilliland, senior vice president of the Iowa Association of Business and Industry, said the governor’s proposal is indicative of the interest he has seen this year to address the impact rising health insurance premiums have had on small businesses.

“I think there’s definitely momentum for some broader opportunities for employers to band together through different pooling mechanisms, whether it’s a catastrophic pool or just a general reinsurance pool,” he said. “I think every employer that’s a member of ABI has seen double-digit increases over the past few years, so everyone is interested in stabilizing the growth of those premiums. … I think realistically no one is under the illusion that these measures are going to reduce premiums, but if we can provide some stability, that can help small businesses better budget for health-care premiums.”

Vilsack’s proposal calls for using $30 million of revenues generated by a proposed 80-cent-per-pack increase in the cigarette tax to fund the reinsurance pool in the first year. The program, which would also be available to school districts, is modeled after reinsurance programs that have been adopted in Arizona and New York.

Arizona’s program, the Arizona Health Care Cost Containment System, covers more than 5,800 small business groups, with more than 16,000 employees enrolled. Businesses and employees pay the full cost of insurance but are reimbursed for high individual claims by the program, which last year stopped receiving state subsidies and was required to become self-sufficient.

The Healthy New York program, created in 2001, reimburses health plans in that state for 90 percent of claims between $5,000 and $75,000. As of October, it had approximately 102,500 active enrollees and averaged more than 7,000 new enrollees per month in 2005. To qualify, small employers, sole proprietors or individuals must not have been insured during the past 12 months. Businesses must have fewer than 50 employees, at least 30 percent of whom must be earning less than $34,000 annually, for the company to buy into the program.

Those states are among 21 that have some type of reinsurance program, though many of those programs have low enrollments and some are inactive, according to State Coverage Initiatives, a Washington, D.C.-based initiative funded by the Robert Wood Johnson Foundation that helps states improve the availability and affordability of health-care coverage.

“Recently, some states have revisited the concept of reinsurance to spread risk in insurance markets, improve the predictability of claims and reduce the mark-up of premiums that insurers charge as a buffer against unanticipated claims,” stated an issue brief published online by SCI. Among those states are Connecticut, Idaho, New Mexico and Massachusetts.

At the federal level, the Senate is now considering a bill that would authorize trade associations and other business groups to form association health plans that would enable them to collectively purchase health insurance and take advantage of large-group rates. The U.S. House passed similar legislation last year; Senate approval is needed to bring the bill to the president.

“We would be interested in providing that again to our members,” said ABI’s Gilliland, who said the association had to discontinue its pool in the 1990s when federal law no longer allowed groups from different industries to create such pools.

The Iowa Legislature last year considered several bills to address high health insurance premiums, but none were passed, said Insurance Commissioner Susan Voss. Following the session, “the department was asked to look at ways to reduce (premium) costs,” Voss said. The governor’s proposal is based in part on input received through forums held in the past year involving agents, insurers and other interested groups, she said.

“I think there are several groups out there looking for relief,” Voss said, “small employers who don’t have enough coverage, those that don’t have any coverage and individuals who aren’t buying insurance at all.”

Within any covered group, 20 percent of the insured members typically account for about 80 percent of the costs incurred, Voss said. The reinsurance mechanism should provide more predictability for employer groups in budgeting their costs and more certainty for insurers as well, she said.

“Clearly it’s a way (insurers) can better look at their rates and premiums, if they know there is a certain amount that can be reinsured,” Voss said.

Large insurers, however, have opposed state reinsurance programs, arguing that mandatory reinsurance made no sense for them from either a business or a public policy perspective, according to an issue brief published by State Coverage Initiatives. “In response, state reinsurance programs rarely, if ever, required Blue Cross and Blue Shield plans to participate, and many made the entire program voluntary,” according to the issue brief.

Iowa’s largest health insurer, Wellmark Blue Cross and Blue Shield, did not respond to requests for an interview on this topic.

The Iowa Federation of Insurers, which represents 28 insurance companies that operate in Iowa, has not yet adopted a position on the governor’s proposal, said Paula Dierenfeld, the federation’s executive director. “At this point, we haven’t seen many details,” she said. “We are doing our research to see what these other states have done.” Dierenfeld said health-care costs are an issue both Democrats and Republicans are focused on this year.

“I think we’ll see a lot of proposals this session as they consider what the best approaches are,” she said.