SB 110 overhaul tops ’05 agenda

First of two articles

Let’s skip the preliminaries. The state is facing a mind-boggling deficit in this budget year. And with a new governor elected on a pledge to veto any broad-based taxes, expect a another major catfight over the state’s revenue sources that could once again pit one business group against another.

Beyond fiscal issues, the incoming Legislature will consider more than 435 bills that will have either a direct or indirect impact on the state’s businesses.

Despite the legislative mountain rising for 2005, much of the New Hampshire business community’s attention will be on one law that was passed two years ago: Senate Bill 110, which ended community rating for small firms buying health insurance.

“It is our biggest issue going forward,” said John Dumais, president and CEO of the New Hampshire Retail Grocers Association.

Dumais said his members have seen increases in health insurance premiums of “as high as 75 percent.” Some are paying more than $5,000 a year per employee. “Something has to be done about it,” he said.

The question is: what?

New Hampshire veered from the rest of the country a dozen years ago by instituting its own community rating system. The law stated if you wanted to write insurance for one small group, you had to write it for everybody at the same rate (with some allowance for age differences). The insurers cried foul, and many left the state, so opponents of community rating successfully lobbied to bring back underwriting into the small group market, allowing insurers to take into account geographical location, experience, occupation and – to a greater extent than before – age.

The hope was that insurers would come back into the state and this would drive down premiums, or at least slow down the increases. The reality – thus far – is that, while some small insurers have returned, no major insurer has. Rates have gone up as a whole at roughly the same rate as before, and for some groups they have skyrocketed. An attempt to cap rates at 25 percent a year failed because of the legislative fine print and now even supporters of SB 110 realize that something went terribly wrong.

“I did not expect this,” said John Hunt, who shepherded SB 110 through the House Commerce Committee two years ago (and who suspects his support of the bill was one of the reason he no longer chairs that committee). “Clearly there were people who were hit hard, and I feel it is my responsibility to try to soften that blow,” Hunt said.

Hunt headed the committee that studied the oversight of SB 110 and offered a bill that would increase premiums for everybody in order to help those who are the most hurt.

On the other side of the State House hallway, SB 110’s most ardent defender is Sen. Robert Flanders, R-Antrim, who chairs the Senate Insurance Committee.

Flanders wants to set up an assigned risk pool made up of those who face the highest rates. Insurers would have to contribute, which should increase everyone’s rates slightly. The Senate applied that concept to the individual market, and it worked so well, according to Flanders, that he also wants to eliminate the self-employed from the small group pool (which currently covers employee groups of between one and 50). He hopes that the change will lower rates for those most effected: small groups of under a dozen.

Self-employed people don’t need small group coverage since “we fixed the problems in the individual market,” Flanders said.

However, the New Hampshire Association of Realtors – which represents many self-employed brokers – thinks that the individual market leaves a lot to be desired.

“We want to maintain the protection for groups of one,” said Paul Griffin, executive vice president of the association.

Other lawmakers think it is time to end SB 110, not mend it.

An outright repeal is being proposed in the Senate by Margaret Hassan, D-Exeter, who rode resentment against SB 110 into the State House when she defeated Russell Prescott, the prime sponsor of SB 110, in a Seacoast district where premiums shot up the most.

“There is strong support for a community rating system,” said Hassan. “I think that dividing up the state by health, geography and industry classification is terrible and ends up dragging the whole system,” she said.

Then there are those who want to repeal parts of the statute. Martha Fuller Clark, D-Portsmouth, would eliminate health status as a rating factor and Rep. Jane Langley, R-Rye, proposes ending geographical location.

“You might as well repeal the whole thing,” countered Hunt. “That’s the only reason the companies are coming into the state. If you want to get rid of anything, get rid of industry classification.”

Flanders agreed, arguing that eliminating geographic rating would be “unfair as hell.” But he said he is considering putting in a provision to end geographic rating in his bill, if it is combined with the assigned risk pool.

Business groups are not exactly speaking with one voice on the SB 110 debate. The retail grocers favor repeal, but most other groups are more cautious, backing some reform or an alternative before getting rid of the current system.

“We have to see what will replace it,” said Jasen Stock, executive director of the New Hampshire Timberland Owners Association. “We want to make sure that the cure isn’t worse than the disease.”

And business – after the experience of the sudden ending of community rating – is fearful of another radical shift.

“Business really hates sudden change,” said Brett St. Clair of the Business and Industry Association of New Hampshire. “Companies doing business one way will have to re-engineer with the new system, and you have to remember that there are winners under SB 110. If you roll back the clock, their rates are going to go up. And we don’t want to scare away new companies that have come into the market.”

Other health proposals

Fixing or eliminating SB 110 isn’t the only health-care question. There are the other usual culprits — the high price of prescription drugs and the rising cost of physician malpractice insurance — and the usual legislative fixes — purchasing alliances, tort reform and expansion to mandatory health-care coverage.

But there also are some creative solutions being put forward. Look for the near-annual debate between doctors and lawyers over a mandatory screening practice for medical malpractice litigation. But this year, Rep. Dan Itse, R-Fremont, has another idea.

Itse learned the hard way that the existing law limits malpractice awards to actual damages, when in 1997 he went to court against a physician who he blamed for his son’s disability. The settlement – the largest in New Hampshire at the time against a doctor – didn’t top $1 million. It was less than a fifth of the actual projected costs to care for him, and less than a tenth of the award he would have received in states that allow for punitive damages.

Why then, asked Itse, aren’t New Hampshire malpractice rates lower than the rest of the country? Upon investigation, Itse said that he discovered that insurers used multipliers based on national data to determine the malpractice rates for specialists.

So this year Itse is sponsoring a bill that would require that malpractice insurers in New Hampshire based their rates on New Hampshire statistics.

“Since we have gone the route of no punitive damages, we might as well collect the benefits,” said Itse. “My bill would simply stop New Hampshire physicians from subsidizing these large national awards around the country. That should bring down rates far better than any vetting board would do.”

Rep. Fran Wendleboe, R-New Hampton, has come up with a novel way to help pharmacists expand business and perhaps lower health costs.

Her bill would allow them to give routine injections – such as flu and insulin shots — in collaboration with a physician’s office. That voluntary program would make the shots not only more affordable but more accessible, since they would take place at the drug store. There would be training involved, and some liability issues, but so far pharmacists seem to be on board, Wendleboe said. After all, it’s a voluntary program and might help bring more customers in the door.

Wendleboe also is reprising her bill to offer health savings accounts to state workers. This could help the idea spread a little more among the private sector, which has been reluctant to accept them, she said.


After health care, taxes is the biggest concern of New Hampshire businesses. Most groups are wary of any increase in the business profits tax or the business enterprise tax, the usual place lawmakers go when there is a shortfall of revenue.
Thus far, no one has dared to propose such an increase, but such increases are usually part of a last-minute budget compromise, and the BIA, as well as other groups, will be keeping a sharp lookout for any such increase.
Some bills have been sponsored that call for business tax decreases, but few observers give them much of a chance of passage. Other bills that call for limited tax credits or exemptions might be more viable. Several focus on some sort of tax break for new high-tech start-ups.
For instance, Rep. Peyton Hinkle, R-Merrimack, would give a tax credit against the BET or the BPT for money spent on research and development wages, as long as the credit doesn’t exceed 15 percent of all wages, or 5 percent of a company’s tax liability.
“We have been losing high-tech employment during the last three years,” he said. “We are looking to stimulate job growth,” said Hinkle.
Another proposal, from Representative Itse, would exempt new businesses from paying BET taxes on the money they pay on interest during the first five years. (The BET requires companies that make little or no profit to pay taxes on wages, interest and dividends.)
Taxing interest discourages borrowing money, “which is like killing the baby in the cradle, particularly of a high-tech business,” said Itse. “These companies don’t produce a lot of revenue anyway and bring in high paying jobs.”
The most likely tax increase, however, is not on business, but could affect business: the cigarette tax. It is the only tax that Lynch says he would support, though only to fill the education-funding gap and not the other gaping holes in the budget.
Dumais of the Retail Grocers Association opposes the tax, not just because it will hurt his members – particularly mom-and-pop grocery stores on the borders – but because it could dampen tourism generally, he said.
But refusing to raise revenue can backfire as well, because many businesses depend on government spending, such as construction firms. Indeed, the New Hampshire Lodging and Restaurant Association’s top concern is the loss of tourism promotion dollars.
That kind of state spending is an investment, argued association President Paul Hartgen, because every dollar in promotion leads to $9 pulsing through the economy.
On the other hand, Hartgen flatly opposes the one way of raising revenue that isn’t a tax: expanding gambling, which, he argues, sullies the state’s clean image and soaks up discretionary income that could be spent on fine dining and upscale hotels.
One thing nearly all groups – particularly the retail and hospitality industry — can agree on, however, is opposition to the perennial proposal to increase the minimum wage. (The BIA abstains on that issue because most of their larger industrial members pay far above the minimum.)
Look for similar unity when it comes to other labor initiatives, be it a crime victim employment leave act, expanded mandatory overtime, increased unemployment benefits, making it more difficult to fire workers at will or a bill proposed by Marshall Lee Quandt, R-Exeter, that would make it easier to file under the labor protection statutes, by doubling the filing time to 36 months and allowing the state Labor Board to file on behalf of the worker. nhbr
This is the first of two articles reviewing legislation affecting business pending before the 2005 Legislature. Next issue: A look at environment, construction, real estate, state contracts, licensing and consumer protection legislation.

Categories: News