Testimony of Audrey C. Talley, Esq.
Chancellor of the Philadelphia Bar Association
Hearings on Senate Bill 671
Monday, June 16, 2003
I would like take this opportunity to thank the hearing committee for the opportunity to present this testimony on behalf of the Philadelphia Bar Association in support of the proposed prohibition in S.B. 671 against demographic rating in the setting of health insurance premiums.
The issue of ever-increasing health insurance premiums is of concern not only for insureds but also those employers who provide coverage for them. The past several years have seen annual premium increases in the Philadelphia region of 15 to 20 percent. In many cases, the rising cost of coverage has resulted in an ever-increasing burden on the individual insured who must pay a percentage of his or her coverage. While demographic rating for small groups of under 100 participants might in some instances cause a reduction of premiums, it will also have a far reaching and devastating impact on many employers and insureds in the Greater Delaware Valley. Based on preliminary projections, approximately 20% of groups will see an additional increase of 35% over the yearly base increase of 10-15%, and in groups with less than 5 insureds, increases of up to 60% will occur. The Philadelphia Bar Association also has grave concerns that such rate increases will result in both an increase in the number of uninsured individuals as well as an increase in discriminatory acts against women and older insureds (which will include many with chronic illnesses and/or disabilities.) 
Presently, most coverage for small groups has a community rated premium. This allows the risk inherent in all insurance pools to be spread out in a very large group with a diverse experience, allowing good experience to balance out bad experience. Demographic ratings may result in a decrease of premium for those with good risk (primarily single men under 40), because traditionally this demographic group has a low level of utilization of health insurance benefits. However several demographic groups will see prohibitively high increases in their insurance premiums. These are women of child bearing age where pre-natal, birthing and pediatric benefits are often used; older men, who use their health coverage in addressing issues specific to men�s health as well as aging in general, and those with manageable chronic illness and/or disabilities. All of these groups have much higher rates of benefit utilization.
Consider the domino effect of such a rating system. Groups which because of their demographics would benefit from opting out of community rated plans will at the same time remove the good risk balancing factor from those community rated plans. As good risk decreases, premiums in community rated plans, already at record high levels, will increase even more. For many employers, the cost of community rated coverage will be unfeasible, and they will no longer be able to offer a community rated program, thus forcing those who do not want a demographic rated plan to go into one.
Now, consider the position an employer faces in a demographic rated plan. Let�s say an employer is fortunate enough to have two openings that it is looking to fill. Five applications are received from equally qualified individuals-two men under the age of 35, two women under the age of 40 and one man over the age of 50. The employer trying to provide decent health coverage for all its employees understands that the company�s health insurance premiums will possibly go down or at least remain the same if the two men under age 35 are hired. If even one women and/or the older man is hired, the employer knows that the company�s premiums will be negatively impacted. This is true even if the older man is healthy and neither of the women intends to have children.
It is unrealistic to think that an employer will ignore on every level the impact of hiring an employee who will increase the cost of providing health coverage to all employees. Employers will be placed in the position of having an economic incentive to make employment decisions that consider age and gender. Under the guise of controlling premiums, demographic ratings will single out various groups and stigmatize them within the health insurance community. Valuable resources to the society at large will be lost as years of progress towards true equality for minorities and diversity in the work place slowly and subtly erode.
Another fallacy in the demographic rating structure is that it does not result in overall lifetime savings on health insurance premiums. Individuals who are young and healthy today will age, and many will not remain healthy. Over their lifetimes their premiums will increase  disproportionately as they age, and by the time they are eligible for Medicare more premium may have been paid for their coverage than would have been paid in a community rated plan with adequately spread out risk.
For those employers with high-risk demographics, employees may be forced to pick up an even greater portion of their health care coverage as employer resources for employee benefits become exhausted. Inevitably some individuals will opt out of having any coverage whatsoever. This will result in a further increase in everyone�s health care costs as more medical bills go unpaid, as those without coverage forego any type of preventive medical care, and as an already overburdened system is forced to provide more acute care and emergency services. All this will ultimately cost more for all taxpayers in our Commonwealth.
For all these reasons, on behalf of the Philadelphia Bar Association, I urge you to support any legislation which prohibits demographic underwriting in small groups. The whole concept of insurance is to spread the risk of coverage over a large group, not to make those high-risk groups bear the burden of their utilization. None can deny that skyrocketing health care costs are a pressing national concern, but demographic underwriting in groups of fewer than 100 participants is not the answer to that problem.
Thank you.
Respectfully submitted,
Audrey Talley
Philadelphia Bar Association