As the public debates what might happen if the government enacts a public health care option, Arizona's experience may serve as a touchstone.
A public option for small businesses has been in place there for decades.
Under the Healthcare Group of Arizona — the state's publicly sponsored option for small businesses — employees have a $2,000 yearly deductible and have co-pays for doctor and hospital visits. But their premiums are less than half of what private insurance would cost. The insurance is portable; premiums are determined not by health conditions but by age, gender and business location.
"The public option has been working for me in comparison to what I can get," says Susan Gamble, who owns a small business. Gamble pays about $3,000 per employee versus the $7,000 she would pay with a commercial insurer. And Gamble has a pre-existing condition, which might make private options more expensive— and more difficult to get.
Healthcare Group was started in the 1980s with grant money. The state began subsidizing it in the 1990s. But enrollment was small, and so was the subsidy. Then, in the early part of this decade, Healthcare Group decided to expand. It started marketing heavily, and enrollment tripled from about 10,000 to 30,000 members. That's when trouble started. Many of the new members were what the insurance industry calls high risk. One patient alone had a blood disease that cost the group $1 million a year.
Monica Coury, spokesman for Healthcare Group, calls it a "perfect storm." Coury says too many sick people were insured, administrators couldn't keep track of claims, and hospitals and doctors demanded top-dollar reimbursement, unheard of for a group plan.
"We had new membership growth with a history of medical utilization that we were not appropriately or adequately aware of and increases in reimbursements to providers," says Coury.
Within three years, Healthcare Group owed about $20 million.
Republican Kirk Adams, speaker of the Arizona House of Representatives, who opposes Healthcare Group, says taxpayers had to bail it out.
"They don't have the incentive to run their program in terms of the underwriting perspective or a cost perspective to make it work financially," Adams says. "And in my opinion, it is a harbinger of what we would see from a national public option."
Adams knows the insurance business. He owns an insurance agency in Mesa, Ariz., which sells health coverage through Blue Cross/Blue Shield. He led a move a few years ago to take away the state subsidy, ordering Healthcare Group to be self-sufficient. So Healthcare Group streamlined administration, raised premiums, negotiated lower payments to doctors and hospitals, and limited participation by no longer allowing companies with only one employee to join.
Those measures turned the public program around, Coury says.
"Currently, Healthcare Group is operating in the black," Coury says.
Health Care Group is even paying off its deficit from previous years.
Currently, there are 13,200 plan subscribers, though membership has been dropping as the economy has forced small businesses to close.
Adams still argues that it unfairly competes by charging less than the private sector.
State Sen. Ken Cheuvront, a Democrat, disagrees. He says Healthcare Group provides care for workers who would otherwise be uninsurable. This year Cheuvront co-sponsored a compromise proposal with a Republican colleague to keep Healthcare Group alive. Some GOP members want to kill the program.
Cheuvront says he has learned some lessons that could be applied to legislators fashioning a national public option: Educate yourself and spread financial risk by enrolling enough healthy people.
"There are, of course, going to be sick people, but you also need the income from people who are not going to be spending a million dollars on a blood disease," Cheuvront says.
Adds Cheuvront, give a public option time to work — and time to change what's not working.