FALLOUT FROM THE BUDGET BATTLE : Insurance Reform Is Relief for Some : Health coverage: A few small employers are expected to benefit from the reforms passed this week. But basic problems remain.

Nobody pretends that the health insurance reform the Legislature passed this week will solve--or even address--the fundamental problems of health care costs and access in California.

At most, for a limited number of small employers--and perhaps 100,000 of their workers--it will curb a terrifying volatility in health insurance prices and keep insurers from rejecting them outright.

For Maxine Weinman, that may be enough.

Weinman, who opened Maxine’s Seafood Cafe in Hollywood 4 1/2 years ago, has twice been forced to drop health coverage for her 10 employees.

She tried for many months to hang onto her original policy in order to protect an employee, a waiter with AIDS.

“The cost of premiums was so prohibitive that we finally lost the policy,” she said.

After many rejections, Weinman found another insurer but saw her premiums triple as the AIDS-stricken worker was finally succumbing to the disease. The second policy was canceled when she was late with a payment.

Other small businesses across California have been forced to choose between absorbing staggering premium increases and either dropping coverage entirely or cutting employees with medical problems out of the plan.

Some, enticed by low “teaser rates,” have signed with insurers, only to be denied renewal or slapped with exorbitant rate hikes as soon as a claim was filed.

It was these abuses that spurred some of largest insurers doing business in California--Aetna, Travelers and Cigna, to name three--to start the process that, after three years, led to the legislation passed Monday.

Gov. Pete Wilson has indicated that he supports the bill and has until Sept. 30 to sign it; it would take effect next July 1.

The bill requires carriers who offer small-group insurance to extend it to any employer who applies, regardless of its employees’ medical history or perceived risk of disease.

Further, it requires insurers to keep their prices within a “band” such that no customer pays more than 20% above or 20% below the carrier’s average rate for all small groups. (Insurers, however, are allowed to adjust rates beyond the band for certain variables such as the age of the work force.)

The bill also prevents a carrier from raising a particular employer’s annual renewal rates more than 10% beyond whatever price increase has been set for other small groups.

These provisions are designed to keep insurers from “cherry picking” only the healthiest customers and to give small businesses protection against huge rate hikes. They are also meant to reward insurers who do a good job of managing care and negotiating lower prices from doctors and hospitals.

The legislation is expected to help 100,000 to 400,000 workers to get health insurance for the first time. Most observers accept the lower figure, but even 400,000 newly insured people would hardly make a dent in California’s 6 million uninsured residents.

And there is a cost.

Walter Zelman, health insurance consultant to Insurance Commissioner John Garamendi, said the new law is expected to push health insurance prices up about 3% across-the-board.

Although the legislation forces insurance companies to cover those who want policies, it doesn’t force small businesses to buy. The main reason employers don’t buy insurance is not that it isn’t available, but that it costs too much, even for an employer with a young and healthy work force, Zelman waid. This legislation doesn’t address that problem, he said.

One aspect of the bill that could lead to broader health care solutions is a provision giving small employers the option to join a large-group purchasing pool to negotiate rates with carriers. An aide to Assemblyman Burt Margolin (D-Los Angeles), the bill’s chief sponsor, said giving small business the same economic clout as big business will clear some obstacles to cheaper health care.

The legislation is good as far as it goes, said Maryann O’Sullivan, executive director of the consumer coalition Health Access, but it “is not going to take the wind out of the political sails for major reforms.”

Key Provisions of Small-Group Health Plan Bill

Requires insurers to keep prices within a “band” such that no policyholder pays more than 20% above or 20% below the average premium cost.

Forbids insurers from denying coverage to any employer, regardless of its employees’ medical history or perceived risk of disease.

Forbids insurers from raising an individual employer’s rates more than 10% beyond the average annual increase for other small employers.

Limits to six months the waiting period before pre-existing medical conditions must be covered.

Allows employees who change jobs to move from one insurance plan to another without the reimposition of a waiting period.

Source: Office of Assemblyman Burt Margolin (D-Los Angeles)