How much worse can things get?

Health-insurance costs rose at double-digit rates last year. More than 45 million Americans have no health insurance at all --- and some experts believe the actual figure is much higher.

Wal-Mart store managers are being advised to look for young, healthy employees and to avoid hiring overweight and other high-risk applicants.

And locally, we've started down a road that will raise insurance costs --- and can lead to businesses screening out workers with costly health problems.

The latest news: ViaHealth is following large employers like Kodak and the University of Rochester and will "self-insure" its workers. What that means is that ViaHealth has left the Rochester area's "community-rating pool," in which insurance risks are spread across everyone in the pool. That may be good for ViaHealth's bottom line, but it's not good for employees of the businesses and institutions left in the pool --- especially those with health problems, and anybody working for a small business.

How serious is the ViaHealth news? We took that question to a longtime observer of Rochester's health-care industry, attorney Rene Reixach. Reixach is a partner with Woods Oviatt Gilman, specializing in health care. Previously, he was the executive director for the Finger Lakes Health Systems Agency, a regional health planning organization, and he has written numerous articles about health care, including his monthly column for the Rochester Business Journal.

Reixach warned that we could be moving toward discrimination against less-healthy workers. And he said the University of Rochester and ViaHealth have hurt the community by pulling out of the community-rating pool. Following are edited excerpts of our conversation.

What does it mean that ViaHealth is becoming self-insured?

Self-insurance is a way that employers try to reduce the costs of health-care coverage, either paid by them or partially paid by employees. Instead of going to an insurance company and paying a premium for a community pool, which was what was historically done in Rochester, the employer takes on that risk. There isn't any insurance company. The employer takes on the role of the insurance company.

Typically, to avoid any catastrophic claim, the employer will purchase "stop-loss coverage." So if there is a large-ticket claim of some kind, let's say a heart transplant or something, there will be some insurance in the background to cover it.

So the employer is responsible for covering those claims. The employer is responsible for administering the plan. It might hire a third-party administrator, which may or may not be one of the insurance companies. Preferred Care, for example, is the third-party administrator for Kodak's self-insured plan.

So it is way to cut costs. But how do the costs actually get reduced?

Well, the advantage to the employer is that if the employees in the company pool are healthier than the community-average pool, the employer has less risk. Theoretically, that can save money in insurance coverage.

The company also saves money by being able to design its own benefits package and avoid various state mandates. I remember years ago when my daughter was born, pregnancy was not covered. This was voluntary; the state did not mandate coverage for it. The point is, the employer gets to decide what's in the benefits package.

The employers would most likely say that they can also tailor the plan to better fit the need of their employees.

And the community-rated pool?

Most of the other companies in the area buy into an insurance plan that is administered by one of the regular insurance companies --- Blue Cross or Preferred Care, for example. Their risk is spread among all of those people.

But isn't this partly about control of information, too -- information that is supposed to be confidential?

The employers --- if they are larger and more sophisticated, with some ability to analyze the data --- will say they have trouble getting information from insurance companies. And with a self-administered plan, they can see the data, subject to confidentiality rules, and they can analyze it and determine what types of wellness programs may be needed to help their employees.

That doesn't seem like a bad thing. Why should employees care?

A significant problem is the employee's appeal rights. If you have a dispute with a health insurer --- Blue Cross, Preferred Care, Aetna --- it's regular health insurance. The state has an external review process, so if you feel your treatment should have been covered and the insurer says no or your HMO says no, you first go through the internal appeal process. Then you go through the external appeal process run through the state. They hire experts. And they review the decision that was made by the insurer or HMO over whether something was medically necessary.

With a self-insured plan, you don't have those rights. Once you have gone through the internal appeals process of the plan, your only remedy is to go through the federal courts. That's a pretty daunting approach for most folks. Most people just can't do it. And the standards for an appeal in the federal courts are very pro-employer. It is a real uphill fight for the employee that most people are not prepared to take on.

So what does this mean to small businesses? You'd have to be a pretty large firm to self insure, right?

Well, that's the other side to this: what it does to the community rating when companies pull out. During the early 90's in the first half of the Clinton years, the GAO issued a report looking at why Rochester's health-care system was so successful. And one of the main reasons was that we were one of the last areas in the country that still had most of its health insurance through a community pool, or so-called community rating. Everybody paid the same premium, whether they were a small employer or a large employer.

The first significant dent in that was when Kodak pulled out. Then the university pulled out, and now we have ViaHealth pulling out. And when this happens, it shrinks the community pool. The risk is spread to a shrinking and smaller pool of people, so naturally the premiums go up.

Certainly the role of Kodak was critical because they set the tone for it, saying this is okay. Smaller businesses --- City Newspaper, if you will, or some of the small biotech companies that the university says they are trying to get started here --- are too small to self insure or go to experience rating, because if you have just one employee who gets seriously ill, it completely blows your budget.

And as more employers pull out, it leaves behind a smaller, sicker, and more expensive pool in the community pool. And everybody's rates go up, because you don't have the healthier employees to offset the risks.

So what is the trend? Where is this headed?

I can see how companies like Kodak can say: Hey, look --- we've got to do what we have to do to make a profit. We're not a touchy-feely monopoly anymore. We're struggling over here. We're either here to make money or we're not here at all.

But with the university, it's not the same thing. Yeah, they have to balance their budget. But they are not a business in the normal sense.

But they do and should have a different orientation than solely the bottom line. Remember, they get some benefits to help them. They don't pay sales tax, and they don't pay property taxes.

Yet to hear the new president and his predecessor, they see themselves as an engine of economic vitality and entrepreneurial spirit, and they're going to help start up and spin off some of these small businesses. Well, I don't know: sounds like a business to me. You know, if they're going to be a business, maybe they ought to pay sales tax and property taxes like every other business.

Yet they've managed to pull out of the community pool, and that has foisted the costs on the small businesses in the area --- including some of the small incubator businesses they say they are trying to start up. And they still have the benefit of those tax exemptions. How is that helping the community?

And the same thing is true of ViaHealth. Is it really any different than a for-profit hospital?

Anyone knows that you're not helping business, especially small businesses, by increasing the cost of their health-care insurance. I just think at some point, if you're a non-profit and you take advantage of some of the benefits, particularly the sales, real-estate, and income-tax exemptions, there are some obligations that go with it.

I think one has to ask: are these benefits deserved anymore? I know that is probably heresy, and I don't expect anyone to seriously take me up on it, but it is worth asking. I know if I were in Seligman's shoes [UR President Joel Seligman], I would say, Oh no; we really are a non-profit.

ViaHealth is a little different, because they don't do the level of research there. It is mostly about delivering care. But it's part of the same deterioration of the community fabric that was always part of our excellent health-care system. It was something we always prided ourselves on. Those of us who saw this happening with Kodak knew that once the genie was out of the bottle, we were never going to get it back in.

Maybe it's not a surprise that all of this happened. Maybe the surprise is how we managed to keep this going as long as we have.

But look at MonroeCounty. They've gone to an experience-based system. It's no longer Blue Choice. It's Blue 2 or something, a product for county employees. So if that's the position of Monroe County --- the representative of three-quarters of the metro area --- and they're saying all that matters is the bottom line for our budget, well, once again, that means that the rest of our premiums go up.

Is this a step toward selective coverage, selecting employees that pose less risk?

Oh, sure. Notwithstanding the laws that protect against discrimination based on a disability or something, if the employer is self-insured or experience-rated, and someone shows up with diabetes, cancer, or HIV, the employer may not want to assume the cost of that employee's care. Whereas with community rating, it's not going to impact the employer. It will impact the community at large, which it does anyway.

There are potentially serious issues for people with serious health problems, because employers may screen them out. And again, whether that runs afoul of discrimination laws, it's going to be a tough case for someone to prove. So there are serious consequences to all of this.

Will it lead to more use of temporary and contract workers, as well as more uninsured?

That's absolutely right, because as the cost to employers becomes too high, more small businesses will stop offering insurance coverage. And as the cost to employees becomes too high, they will stop buying it. Or they'll stop taking their meds. And we know that the uninsured just don't get the preventive care and don't seek medical attention until something is seriously wrong.

So the irony is, they end up in Strong or Rochester General's emergency rooms. We think the costs are high now: this becomes an extremely high-cost way of covering routine illnesses. It really has exposed the total disconnect between the economic theory behind all of this and the real world.

Isn't it supposed to be better when our hospitals compete?

Well, to some extent, yes. The fact that there is someone else in town may help to keep administrators on their toes a bit more, because maybe patients can demonstrate some degree of choice. But what we've really gotten is a lot of image advertising. How much money goes into all of this marketing? You'll never get a straight answer on it, but these things are increasing costs, not reducing them.

Everyone seems unhappy with the current system. Are we finally inching toward universal care?

No, just the opposite. We're moving further away from it.