Insurance rules leave some in lurch Small companies faced with narrowing options

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The growing challenges for small employers wanting to buy health insurance have hit home hard at Tyson-Kielty Real Estate.

The two-employee Readfield company has been denied policy renewal by insurance giant Aetna. The denial came after Aetna added new hoops for both Tyson-Kielty and its insurance agency to jump through.

“It’s my worst nightmare,” Gary Kielty, co-owner of the real estate agency, said last week.Many other small-business owners in Maine, who already are facing stunning increases in insurance premiums, soon might share Kielty’s nightmare. That’s because some agents will choose not to provide sworn affidavits attesting to the business practices of customers – a condition required by Aetna for policy issuance.

Insurance companies want to avoid companies that may have been formed more to get small group insurance than to operate a business. Insurers already require tax filings, business owner affidavits and other paperwork to document that an applicant’s company is truly a business.

These small groups, especially the ones with just two or three insured employees, are considered expensive to manage because the insurance company’s administrative costs are proportionally more expensive for a small group than for a larger employer group. For that reason, many insurance companies and agencies are less eager to sell to individuals and small groups than they are to bigger companies that promise fatter profit margins.

But small groups defined as having 50 employees or fewer are an important segment of Maine’s work force, accounting for about half the state’s work force.

Kielty’s insurance agent, Business Insurance Agency of Augusta, a unit of Cross Insurance in Bangor, balked at providing the statement to corroborate ones filed by Kielty and his wife, Ann – even though the agent believed the business qualifies for small group coverage. The liability concerns are so great that neither Business Insurance Agency of Augusta nor its parent will provide affidavits to its customers, said Michael Deschaine, principal of BIA. The Augusta agency has more than 50 small group customers that could be affected.

“It’s deeply troubling because I wish we had a simple solution,” Deschaine said. “It’s very difficult for Gary and groups like his.”

Successful insurance agents have to develop portfolios of ongoing business to be successful. As the numbers grow, it becomes even harder for agents to visit small customers regularly. Therefore, it’s a stretch to provide an affidavit for a company that may be hours away, Deschaine said. The notarized affidavit is, “to put it simply, more burden,” he said.

Aetna was the second largest insurer of small groups in Maine, according to the state’s 1999 data. Aetna had nearly 20,000 people insured, which was second by a hair to Blue Cross and Blue Shield of Maine, now owned by Anthem Insurance Cos. Since 1999, Aetna has added an unknown number of small group customers, according to Maine’s Bureau of Insurance.

Joseph Ditre, executive director for Consumers for Affordable Health Care, a consumer advocacy group, says thorny paperwork like that required by Aetna can discourage renewals.

“They know it’s just a way of forcing people out of coverage, and they don’t want to be in the business [line] anymore,” Ditre said. “They want to only get into markets that are good risks and they don’t want [small group].”

Aetna is in the process of withdrawing from small group markets in other states. But Ann Marie Gothard, a New York-based spokeswoman for the Aetna’s Northeast region, said recently she’s unaware of plans to do that in Maine. She said the requirement for an agent to provide an affidavit was developed with the Bureau of Insurance’s knowledge.

But Kielty, who is 60 and was prepared to accept the same coverage with a 32 percent price increase for 2001-2002, said he knows when a company is trying to rid itself of business, and he has filed a complaint with the bureau. “Aetna feels if they hassle the small people enough, they’ll just go away,” he said.

In a letter sent to Kielty, Aetna suggests that he and his wife buy individual insurance, which is a more expensive proposition.

Alessandro Iuppa, Maine’s superintendent of insurance, said he could provide only limited comments.

“Complaint information is confidential, but we’ve had several, and it has not gone without notice at the bureau,” Iuppa said.

In October, a recent revision of state law will clarify what criteria would qualify companies with two employees for small group insurance. The revision, though controversial, will include a provision for an agent to provide an affidavit, but the wording is different from Aetna’s, Deschaine said. The new law allows for “a statement from the employer’s insurance producer [agent] affirming the producer’s belief that the employer qualifies as an eligible group for coverage.”

Iuppa said his current assessment of Maine’s small group market is that it is in a “tenuous situation.”

Insurers have been pulling out of the small group and individual marketplace. At the same time, small groups have been facing difficulties with rising costs. Premiums jumped 49 percent in Maine from 1996 to 2001, according to a recent study by 1st District U.S. Rep. Tom Allen.

In a study by consumers for Affordable Health Care and the Maine Center on Economic Policy released last year, 77 percent of small businesses surveyed said they had offered health insurance to their employees in the last three years, compared to 68 percent that say they offer it now.

Since he got a denial letter from Aetna, Kielty located an insurance agent in Readfield who will add his affidavit to those already filed by the Kieltys.

The real estate company is based in a big building in Readfield Center, and it is the listing broker on an average of 40 or more properties across the region northwest of Augusta. Kielty laughs when asked if he works more than 30 hours a week and his wife more than 10, as required to qualify under Maine law. He said they work many more hours than that, and years of IRS filings verify Tyson-Kielty’s business operations.

Aetna hasn’t said whether it will renew now that it has all the additional paperwork, Kielty said.

Deschaine of BIA explains that he’s been directly involved with health insurance sales for more than 25 years. He said many of the problems today are simply recasts of issues that have been around for years.

With Maine having lost so many insurance carriers in recent years, the risk is that they will get pushed too far with restrictive regulations and therefore leave Maine entirely.

Deschaine said people should understand that Maine isn’t alone in its health insurance problems. Other states are seeing carriers pull out. But even when there were more carriers, there were problems.

“What was the problem five years ago?” he asks. “Why didn’t people get [health insurance] then?” Because many of the problems are the same, he said.

Businesses of all sizes are grappling with the additional burdens of price and narrowed choices in purchasing health insurance. Deschaine said he has a client with more than 100 employees that this year nearly dropped its health coverage entirely.

So additional form requirements add to redundancies that can tip the balance toward not renewing in other cases. The redundancy makes the agent’s life more difficult as he acts as intermediary between insurance carrier and customer, Deschaine said.

“It’s somewhat of a delicate issue from an agency standpoint,” he said.

Ditre, an advocate of universal health insurance, said he thinks Kielty’s experience only underlines a concept that many forget about big insurance companies.

“They are in the business of insurance profits; they’re not really in the business of insuring health care to people who need it,” Ditre said.