Majority Democrats in a Senate committee approved a measure today critics said will increase insurance rates for nearly two-thirds of small businesses in Colorado.

House Bill 1355, by Sen. Bob Hagedorn, D-Aurora, and Rep. Anne McGihon, D-Denver, is an attempt to prohibit health insurance companies from providing discounts to healthy employees. The proposal passed through the State, Veterans and Military Affairs Committee on a 3-2 party-line vote.

Sen. Dave Schultheis, R-Colorado Springs, one of the committee's two Republicans, said the bill has raised an outcry among small business owners who have feared its ill-effects.

“That’s why I’m a ‘no’ vote on this bill,” he said.

If HB 1355 is signed into law, Colorado will be one of just 13 states that require insurers to set insurance rates for all older employees as if they were severely ill, rather than reward those among them who are healthy. The bill can increase rates by up to 31 percent upon taking effect, say those opposed to the measure.

Hagedorn noted that HB 1355 is targeted for implementation on Jan 1, 2008.

Sen. Shawn Mitchell, R-Broomfield, has suggested that hundreds of small-business owners would be impacted with increasing health-insurance rates via HB 1355. On Tuesday, he fought for, and got, an additional day of public notification on the bill as Hagedorn agreed to lay it over.

“This is one of those bills where someone cried havoc and released the dogs of war,” said Hagedorn during his introduction of HB 1355 to the committee.

Against the proposal was Lee Brown, a small business owner with 15 employees in Castle Rock, who said if insurance rates increase in the state, she won’t be able to afford it.

“Having health insurance widens my pool of getting a better qualified employee,” she said.

John Craft, representing the Colorado Group Insurance Association, suggested that 60 percent of businesses will experience a rate increase above of the normal rate if HB 1355 passes. Only 30 percent of businesses are likely to benefit, he said.

“If we price small business out of the marketplace, there will be no one left to balance it out,” he said.

SB 1355 is headed to the full Senate for consideration.