A viable alternative from health insurance carriers ... managed care.

The advent of small group reform law, AB 1672 (effective July 1, 1993) will have a major impact on how small business owners in California perceive and provide health coverage for their employees.

There are four important provisions of this law that will benefit the small business owner immediately. First they will be able to obtain coverage that previously may have been available to them. Second, with the introduction of guaranteed issue, a small employer group cannot be denied coverage regardless of the health conditions of its employees. Third, a maximum pre-existing conditions limitation of six months for all employer plans will now be in place. A pre-existing condition is an injury or sickness which occurred before to the effective date of coverage with the carrier. And fourth, portability of pre-existing conditions is mandated for all plans. With portability, credit must be given for the time a person was covered under a previous health plan.

While AB 1672 seems radical in nature by calling for uniform underwriting for groups of 5 to 50 and rating practices for groups of 3 to 50 employees, it could provide the answer than many small business owners are seeking.

Let's look at the current status quo in California. Currently, about 65 percent of uninsured Californians work for small employers who do not provide health coverage. Rising healthcare costs have made the purchase of quality medical coverage the elusive brass ring moving further and further out of the reach of California's more than 285,000 small businesses.

Against the backdrop of explosive health care costs, we are seeing a trend of small businesses moving toward healthcare plans with manages care features as a way to satisfy their employees' needs for affordable, yet quality health care. Concurrently we have identified that 65 percent of our own small group clients are in one of our three Preferred Provider Organization networks in the state of California.

The challenge for health insurance carriers is clear... they need to become an active participant in addressing the needs currently faced by the small business owner. They must provide employers the ability to control costs while offering a broad range of quality health benefits.

With a history of serving the group insurance needs of small to medium sized businesses since 1950, and since the 1979 introduction of our ESP product for groups of 1 to 25 employees. Home Life Financial Assurance Corporation has a long standing commitment to serving the small group market. With a thorough understanding of this market, we have been actively offering managed care plans since 1985.

On our behalf, HealthCare Connections, Ltd. conducted a market research study to identify those plans and features that would best serve our clients needs in California.

In researching managed care plans, and the long term implications as they pertain to our ability to conduct business in California, we made a decision early last year to expand our managed care offerings by introducing Exclusive Provider Organization (EPO) plans.

In response to small group reform, we will modify our ESP product for California employers of 1 to 50 employees to include an EPO alternative in this size market.

EPO plans offer employers a stronger measure of controlling healthcare costs than available with PPOs, while offering traditional levels of benefits, because employees are restricted exclusively to a specific network of providers.

In addition, we will offer small employers a choice of EPO plans: EPO Only or EPO/PPO Dual Option. The Dual Option allows the employer to provide employees the choice of electing an EPO or a PPO plan. This latter alternative allows the employer to ease into a more restrictive managed care alternative.

Employers seeking alternatives to health maintenance organizations (HMOs) are finding EPO plans very effective. HMOs were previously selected by employers for their employees because they though it was the only type of coverage they could afford. The emergence of EPO plans and EPOs coupled with PPOs is making them re-examine their options.

Overall, when seeking superior quality health coverage at the lowest possible cost, businesses would be wise to seek out carriers that offer a variety of managed care plans when it comes to choosing quality care for their employees.

In deciding among managed care programs, it's essential that employers take into consideration numerous factors: the potential for significant savings, and the assurance of quality care. It is critically important that employers not forget to examine the integrity of the provider network in the plan they select and the commitment of the carrier behind the plan.

As the healthcare environment undergoes significant reform in the months to come, the picture can only get more promising for small employers. There are certain to be more changes in plans and greater competition among carriers with quality coverage. The carriers who remain in the small employer market will be those who are truly committed to serving the insurance needs of the small employer. Ultimately, this can only benefit small businesses -- and their employees who are looking for better solutions to their healthcare needs.

James A. White, CLU is president of Home Life Financial Assurance Corporation (HLFAC)