Critics pan small-business health insurance law; AB 1672 requires small-group plans as of July 1993.

The California Medical Association claims Assembly Bill 1672, touted to make health care insurance available to 2.2 million Californians who work for or are dependents of those who work for small businesses, will fall far short of its objectives.

Sponsored by Assemblyman Burt Margolin, D-Los Angeles, AB 1672 was passed into law on Sept. 29 and takes effect July 1, 1993. It requires health insurance companies to offer group plans to businesses employing between five and 50 workers. It also prohibits insurers from jacking-up premium rates or canceling policies immediately after claims are filed.

AB 1672 does not, however, require small-business owners to provide plans to their employees. As such, AB 1672 is an anemic attempt to help the uninsured small business employees and their families.

Roughly 25 percent of the employees statewide that could take advantage of these "small group" policies are working in Los Angeles County, according to a study conducted by Blue Cross of California and the UCLA Business Forecasting Project.

Representatives of the California Medical Association claim no more than 100,000 small-business employees will get coverage when the new law takes effect in July because AB 1672 has too many holes in it.

For instance, under AB 1672 health insurance providers can write exclusionary policies that do not cover any illnesses associated with a pre-existing health problem, said California Medical Association spokeswoman Danielle Walters.

"Assembly Bill 1672 was just a baby step forward," Walters said. "It does some good, but it's a shame it will not provide a single person more health care insurance than they have now."

AB 1672 makes coverage optional and starts out defining a "small group" as between five and 50 employees when the law first goes into effect in 1993. "Small group" is to be redefined as businesses with four to 50 workers in 1994 and three to 50 workers in 1995.

Once employees of small businesses get coverage, they can change jobs and take their insurance with them, Walters added.

Nonprofits, like Blue Cross of California and Kaiser Permanente, have been offering similar policies for some time, Walters said. But other companies, such as The Travelers, Cigna Health Plan, and Mutual of Omaha, charge members of small groups up to four times what they charge similar employees at larger companies, Walters charged.

Once AB 1672 takes effect, many of these companies will stop writing health insurance in California altogether, she predicts.

Local Travelers and Mutual of Omaha representatives, when called by the Los Angeles Business Journal, would not respond to Walters' charges about their small-group rates being exorbitant, up to four times higher than premiums for managed care. They also refused to discuss whether or not their companies would continue offering health-care insurance in California after AB 1672 takes effect in July.

Health Net, Kaiser Permanente, Blue Cross of California and FHP Health Care have offered small-group health care insurance in California for some time and will compete with one another for the small-business health care policies after the law takes effect next July.

"We insure 244,000 individuals in California under the small-group plans, 66,070 of them are in Los Angeles County," said Blue Cross spokesman Michael Chee.

Oakland-based Kaiser Permanente spokesman Dan Danzig said, like Blue Cross, Kaiser already offers small-group health care plans. Kaiser will keep providing coverage under AB 1672, Danzig promised.

Fountain Valley-based FHP supported AB 1672, according to Nick Franklin, FHP's vice president of government affairs. But that law is only a small step toward the type of health-care reform California needs, Franklin added.

"There are not enough cost-containment features in AB 1672," Franklin asserted. "But I think we'll see some type of national reform next year."