Health Insurers Devising a Plan for Small Firms : Insurance: Worried about Gov. Deukmejian’s mandatory coverage proposal, carriers will vote soon on creating a high-risk pool.

Health insurance companies, fearful of federal and state intervention on behalf of millions of uninsured persons, are quickly developing plans to make coverage more affordable for hard-pressed small businesses.

The Health Insurance Assn. of America will vote later this month on a proposal to create a high-risk pool that would guarantee coverage for small companies regardless of the type of business involved or the health status of their workers.

The industry is very nervous about a proposal being considered by the administration of Gov. George Deukmejian to require all California employers to provide health-care coverage. Under the draft proposal, the state itself could enter the insurance business in a few years, a prospect that is “incredibly frightening,” Carl Schramm, HIAA president, said.

Medi-Cal, the state health program for the poor, “could become a direct competitor” of private insurance in offering coverage to employers, Schramm said. “This is a pro-business Republican governor and administration talking about this.”

Leonard D. Schaeffer, chairman and chief executive of Blue Cross of California, characterized the prospect of the state selling insurance through its Medi-Cal program as a menacing “gorilla behind the door.” But Schaeffer said he is optimistic that the insurance industry can solve the problem of protecting the 5 million Californians who now lack coverage.

Blue Cross began offering coverage this month to high-risk small businesses at rates 30% above its regular charges. “Right now, we’re out on our own in a high-risk situation, but if everyone participates, we could solve the problem,” Schaeffer said.

The Assn. of California Life Insurance Companies is calling for a reinsurance system, with all insurers being required by state law to contribute to a pool that would enable the sale of policies to high-risk small groups at charges no higher than 40% above the average rate.

“It’s a not a stand-alone proposal that will work,” said Brad Wenger, association president. “Insurance reform has to be part of a balanced package requiring cost-containment devices.”

The insurance industry and segments of the business community are concerned that the current version of the Deukmejian plan does not provide effective controls on fees charged by doctors and hospitals.

“The physicians and hospitals brought nothing to the (bargaining) table,” said Martyn Hopper, state director of the National Federation of Independent Business. If medical inflation does not slow, the Deukmejian plan would allow Medi-Cal to offer insurance.

“We are menaced with the loss of market to Medi-Cal if hospital and physician costs don’t come down,” Schramm said. “That is terrifying to us,” he said, because California is one of the states with the fastest-rising medical costs.

The lack of health coverage hits hard at many firms with 25 or fewer employes, where the health problems of a few employees can produce catastrophic premium increases. In addition, many businesses with high turnover, such as motels, hotels and restaurants, are blacklisted by some insurance firms and find coverage available only at exorbitant rates, if at all.

Blue Cross is returning to a traditional community rating, setting its charges on a geographic basis. In Los Angeles, for example, a hypothetical policy might cost $100 a month for a group of 35-year-old workers, all in excellent health and nonsmokers. Another Los Angeles group, with several smokers, two members with heart problems and other difficulties would pay $130 a month, the special 30% margin for higher risks.

Blue Cross is telling insurance agents that it will accept one high-risk worker for every four healthy, standard-risk people, to prevent being flooded with swarms of sickly people.

Insurance industry efforts to make coverage more affordable are helpful, but they don’t go far enough, said Sen. Edward M. Kennedy (D-Mass.), who will press for a Senate floor vote this year on his plan requiring all companies to offer health insurance. The bill was approved by the Senate Labor Committee last year. Rep. Henry A. Waxman (D-Los Angeles) is spearheading the effort in the House.

“I’m gratified the Health Insurance Assn. of America is beginning to recognize existing problems in the small business insurance market,” Kennedy said. “I hope they will continue the progressive movement to eventually support a program that will assure health insurance coverage for every American.”

Even the staunchest supporters of mandatory coverage concede that there is no chance for enactment by Congress this year. But the growing concern about the problem of the uninsured increases pressures on state legislatures and Congress to take action.

The private insurance industry, alert to the pressures, is eager to avert any threat to its role as provider of health coverage for more than 150 million Americans.

In California, the industry hopes for legislative action before 1992, when backers of a far-reaching government insurance program might try to get an initiative on the state ballot.

“We’re pretty far away now from drafting a statewide health-care plan,” said Barbara Perzigian, state organizing director for Campaign California, one of the organizations active in a nationwide effort run by consumer groups to promote national health insurance.

“An initiative won’t happen if the Legislature decides to do something between now and then,” she said. “Certainly the concern and awareness by the public has been increasing. People are beginning to realize they are just one serious illness away from financial disaster.”