State lawmakers are considering significant changes in the way insurers calculate premiums for small businesses in Colorado — a move that could increase costs of buying health insurance.

Rep. Anne McGihon, D-Denver, is drafting a proposal that would roll back a 2003 law allowing insurers to take into account the relative health of a group’s members when setting rates.

Proponents say the law has saved small businesses money, but critics, including McGihon, say the current system isn’t working and has served only to benefit insurance companies, not consumers.

Some favor moving back toward so-called “community rating,” in which insurers can’t charge people more for certain things, such as the condition of their health and or occupation.

“The cost of insurance has escalated,” McGihon said. “Obviously it didn’t work.”

Heavyweight Aetna Inc. would disagree. In 2006, after a five-year hiatus, Aetna returned to Colorado’s small-group market, saying the 2003 law played a role in its decision to return. Insurance experts have long thought more competition leads to lower premiums.

The cost of health care is a chief concern of Colorado employers, many of which have experienced double-digit annual increases in premiums for several years. Some are struggling to provide coverage, and even when they do, it can be too expensive for some low-income workers to afford their share of the premium.

Lawmakers removed some regulatory burdens on insurers in 2003 in hopes of making insurance more affordable for small groups, which includes self-employed individuals and businesses of two to 50 people.

In the small-group market, insurers must cover anyone who’s eligible, but before the new law, insurers couldn’t offer discounts to healthy groups. That posed a challenge because healthy people can obtain cheaper insurance in the non-business market, and some groups choose guaranteed small-group plans only when they are sick, which drives up costs for that line of business.

Now, thanks to the 2003 legislation, insurers can offer discounts of up to 25 percent for healthy groups, but they also can charge less-healthy groups up to 10 percent more. The measure was opposed at the time by some consumer groups and the National Federation of Independent Business, which said only larger small businesses that have completely healthy work forces were going to get the discounts.

It boils down to a philosophical debate — should sicker people pay more for insurance?

[Denver Business Journal, February 23, 2007, Link]