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Coverage Crisis 

A state-backed program that helps small businesses offer insurance faces a tenuous future

As a diabetic who has to take multiple shots of insulin every day to control her blood sugar, Gail Freyer hasn't had an easy time finding affordable health insurance.

"Insurance companies look at me like a major liability," says Freyer, 58, who has battled the disease since she was 23 years old. "They just flat out didn't want me."

So it was a relief about six years ago when she and her husband, who run their own real-estate business, discovered Healthcare Group of Arizona. The company, a state-backed program which helps small businesses offer health insurance, allowed the couple to sign up for coverage despite her pre-existing condition.

By switching to Healthcare Group, the Freyers' monthly insurance bill dropped from about $1,300 a month, with Blue Cross Blue Shield, to about $550.

The program had its limitations. Freyer had fewer choices when it came to selecting doctors, and the insurance didn't cover her when she left the state, so she had to buy insurance when she traveled.

"It's not perfect," she says, "but it's a hell of lot better than having nothing."

But with Healthcare Group now facing a financial and political crisis, Freyer may have to look elsewhere if state lawmakers can't find a way to salvage the program, which was facing a shortfall of more than $20 million in the last fiscal year.

Freyer is among roughly 25,000 Arizonans who are served by Healthcare Group, which was created in the mid-'80s. A spin-off of the Arizona Health Care Cost Containment System, the program is open to companies with 50 or fewer employees, as well as political subdivisions. About 75 percent of the enrollees are sole proprietors, and nine out of 10 are businesses with three employees or less.

State Rep. Steve Farley, D-Tucson, says the program is vital to entrepreneurs who are trying to run their own businesses.

"These are the people that health insurers won't touch, because they are not profitable (for the insurance company) in any way," says Farley, a graphic artist whose family was covered by Healthcare Group before he took office in 2006.

State Rep. Kirk Adams, R-Mesa, agrees that small businesses face challenges in providing health insurance for their employees.

"The good intentions of Healthcare Group are absolutely noble," Adams says. "There is a real crisis in the small-business community in obtaining affordable health insurance for their employees."

But Adams complains that Healthcare Group's financial woes show that it has developed serious problems that need attention. He points out that the organization's HMO plan was spending $1.16 for every dollar it took in, while the PPO plan was spending $1.40 for every dollar received.

"My position was this: The state of Arizona shuts down insurance companies that operate this way," Adams says. "Why do we have a state-sanctioned insurance program that is financially vulnerable and cannot guarantee its ability to meet its financial obligations?"

Farley blames Healthcare Group's financial woes on limitations that the Arizona Legislature has placed on the group. Businesses aren't allowed to sign up with Healthcare Group unless they've been without health insurance for six months, which is a considerable risk for any business owner to take.

Lawmakers also prohibited Healthcare Group from negotiating rates with hospitals like other insurance companies--including AHCCCS--are able to do, meaning they had more expensive claims to pay.

The end result, says Farley, was that Healthcare Group became the insurer of last resort, taking on people with pre-existing conditions who couldn't get insurance elsewhere. At the same time, there were barriers that prevented healthy people--who might have helped bring in more dollars through premiums while not making claims--from signing up with the program.

"You have all these limitations, and you're reducing your risk pool to just the sick who can go nowhere else, and then you're surprised you have all these claims?" Farley asks.

During the last legislative session, lawmakers agreed to give Healthcare Group $8 million to help cover the company's deficit. They also recently set up a committee to study options for the organization's future, but Farley is concerned that the group doesn't have enough time to formulate good solutions between now and the start of the legislative session next year.

"They can't believe they're going to come up with any solutions, to what is a complex problem, with a couple of meetings between now and January," Farley says.

In an effort to resolve its financial woes, Healthcare Group was also was forced to significantly raise its premiums.

Gail Freyer has felt the increase. Her monthly bill has increased to about $900 a month. Despite the higher premiums, she still supports Healthcare Group and plans to keep a close eye on the political maneuvering.

"We're just very thankful to have this organization, and we hope to goodness that politics doesn't get in the way and put it out of business," she says. "I would be up the creek without this, as will many others."

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