STATEMENT
of the
Honorable Nydia M. Velázquez, Chairwoman
House Committee on Small Business
Hearing on Expanding Small Business Health Insurance Coverage Using
the Private Reinsurance Market
May 24, 2007

It’s no secret that small employers are finding it difficult to purchase health insurance.  However, what is less well known is that fewer carriers are offering coverage in the small group market. 

In 2006, the Government Accountability Office reported that in a typical state, the largest insurer controlled 43 percent of the market—up from 33 percent in 2002.  In nine states, the largest carrier held more than 50 percent of the market. 
Consolidation in the insurance industry has made it difficult for smaller insurers to compete and a number have dropped out altogether.  The lack of insurers helps explain why small employers can pay as much as 20 percent more than their corporate counterparts for the same health plan.  Without competitive forces, insurance companies can dictate prices.

Today’s hearing is the second in a series held by the committee to address the issue of providing affordable health insurance for small businesses.  This morning we will look at the state of the reinsurance market and whether there are ways to expand the use of reinsurance to provide more health insurance options for small employers.

Currently, reinsurance is used by insurers and businesses alike to retain risk, increase financial flexibility, and limit exposure to catastrophic costs.  The question before this Committee is whether this model is a viable option to address one of the major cost drivers in the health care market, lack of competition. 

 

First of all, I think it is important to examine whether more insurers could compete in the states if there were better access to reinsurance.  Currently, many carriers are being locked out of the market by large insurance companies that are using near-monopolistic powers.  I believe better access to reinsurance can get at this problem.  Simple economics says that if more carriers are able to sell policies, increased competition could help bring down prices.

Second, the committee will consider whether it is feasible for small businesses to purchase reinsurance directly from a reinsurer.  Typically, only insurance companies and large employers buy these policies to cover catastrophic claims.  Small employers simply do not have the resources to purchase this type of policy on their own.  The issue is what changes to our laws, if any, would make it possible for an entrepreneur to purchase such re-insurance coverage.

I would like for witnesses to comment on whether collective arrangements would allow small employers to buy reinsurance.  Too often, we hear the excuse from insurance companies that they can’t offer small employers coverage or have to charge exorbitant prices due to the risk factor.  If we can eliminate this argument, small businesses can start negotiating rather than simply accepting health insurance prices.

While this may seem like a unique approach, the depth of the problem requires us to look at all our options.  If we fail to do anything, costs will continue to rise, more individuals will find themselves uninsured, and the growth of America’s economy and small businesses will come to a halt.   

We have with us today a distinguished group of witnesses, well-equipped to help us understand the reinsurance market and whether it holds the key to expanding small business health insurance coverage. 

This committee’s goal is to ensure that health care reform does not occur without meaningful consideration of impact on this country’s small business and the workers.  I am pleased that witnesses are here today to share their insights and I look forward to today’s testimony.