Health Pool’s Fate Could Affect Thousands of Firms

Two nonprofit corporations are slugging it out in Sacramento over who should run a health insurance pool for small businesses.

Millions of dollars are at stake in the battle over the Health Insurance Plan of California, a 5-year-old, relatively obscure state-run public-private insurance pool of 7,400 small businesses statewide.

As required by the state law that created it, HIPC is converting to all-private ownership and operation. This comes at a time when the state Legislature is near approval of a bill that would enable the program to serve even more small businesses and increase the value of the HIPC contract to the two companies competing for it--Provider Choice and Pacific Business Group on Health.

The battle’s outcome could affect thousands of small businesses statewide and their ability to get affordable health insurance for their workers. The question is, who can better serve small business?

PBGH is a San Francisco-based coalition and insurance pool of 34 corporations. Provider Choice of Sacramento is a two-person nonprofit created expressly to run HIPC. Its executive director is John Ramey, who for six years headed the state agency overseeing HIPC. Ramey has assembled a board of directors made up of small-business owners with experience purchasing health care.

“PBGH members include Arco, Chevron, Fireman’s Fund, GTE, TransAmerica Corp. and Wells Fargo Bank,” said Ben Davidian, an attorney for Provider Choice. “Over half of the board of directors of Provider Choice are small employers. Who best can represent the interests of small business?”

Emma Hoo of PBGH counters that her coalition’s nine years of experience negotiating health plans is an asset. Whether employers are small firms or giant corporations, they all want the same thing: a good health plan.

“That’s really the crux of it,” Hoo said.

Although PBGH won state approval in a bidding process Aug. 6 to take over HIPC, an oral hearing must be held because Davidian filed a protest on behalf of Provider Choice.

The prize sought by them both--HIPC--is an insurance pool begun in 1993 that serves small businesses with two to 50 employees. Currently, 137,000 employees and their dependents are enrolled, and can choose from more than 20 health-care providers.

Under state law, small businesses in the pool can’t be denied an insurance policy or renewal because of ill employees or those with a preexisting condition. Also, rates can’t increase beyond 10% because of filed claims.

The state’s Managed Risk Medical Insurance Board, or MRMIB, oversees the program and contracts out the day-to-day running of the pool. About $3 million of a $5-million state start-up loan has been paid back from pool revenue. That leaves $2 million in outstanding loans that the new owners will have to pay immediately once it’s been decided who will take over the program.

The $2-million loan payment forms the basis of one of the objections filed by Provider Choice against PBGH.

Bidders for HIPC were required to submit documents proving they had the cash on hand to pay the $2 million, or a binding loan agreement from a bank. But Davidian argues that PBGH has submitted only a “sample” loan agreement that is nonbinding and thus should have been disqualified at the outset.

Other objections raised by Davidian include a fairly complex legal argument that PBGH lacks the appropriate nonprofit status to run the insurance pool, and a financial argument that PBGH’s projected operating and administrative costs of $4.5 million are unrealistic, compared with the $6.1-million and $6.5-million figures submitted by Provider Choice and a third bidder.

But the most serious objection Davidian raises is that the current executive director of the managed-risk board, Sandra Shewry, sits on the board of directors of PBGH. Although Shewry removed herself from the seven-member committee evaluating the bids, four of those committee members were her direct employees, Davidian said.

“I’m not sure what a conflict of interest would be if this is not one,” the attorney said.

Shewry was out of town and could not be reached for comment, said Hoo, who added that PBGH will contest Davidian’s arguments at the hearing.

“We don’t feel that it’s appropriate to make the argument through the press,” Hoo said.

“The strength of PBGH’s proposal lies in the work we have done in improving quality and managing cost for both our members as well as the public at large,” she said, explaining that PBGH also produces health plan report cards as part of a collaborative effort with other companies and nonprofits.

While this dispute is ongoing, the Legislature is about to consider passage of Senate Bill 393. Sponsored by Sen. Herschel Rosenthal (D-Los Angeles), the measure would expand the small-business insurance pool to employers with up to 100 workers.

The bill’s opponents contend that small businesses with 51 to 100 employees have no problem getting health insurance and thus the small-business market does not need to be expanded.

But Peter Anderson, deputy director of MRMIB, said companies this size complain that they can’t get insurance or that the rates increase exorbitantly if there are one or two sick employees.

“We receive numerous calls from owners of businesses that have more than 50 employees. They want to split the company to qualify for HIPC . . . so there is a demand out there, I believe,” Anderson said.

SB 393, which is expected to face opposition from Gov. Pete Wilson, would increase the insurance pool for small businesses. It would allow HIPC to expand.

And that possibility could make the battle over the small-business insurance pool even more prolonged, heated and significant for small businesses.

Vicki Torres can be reached at vicki.torres@latimes.com.