Citing a four-year string of losses in New York”™s small-group market, Empire BlueCross BlueShield next spring will drop health insurance plans that cover some 20,000 businesses statewide, a move insurance brokers here predict will have a great and potentially “catastrophic” impact on small businesses in Westchester.
Mark Wagar, president and CEO of Empire, in a recent interview with the Business Journal said the company as of April 1 will eliminate seven of the 13 group plans it currently offers New York employers with two to 50 employees.
Empire at the same time will cut its payments to brokers from a 4 percent commission on sold premiums to a flat monthly fee of $5 for each member of a small-group plan.
“In most cases that works out to a pretty substantial reduction in the broker revenue,” said Rory P. O”™Brien, president of RPO Group Inc., an employee benefits brokerage and advisory firm in White Plains. The current 4-percent commission amounts to $22 to $24 monthly or more for each plan member.
With the sharply reduced brokers”™ payments and the elimination of Empire”™s most competitive and widely purchased insurance products, “It”™s like they hit us with a double whammy,” O”™Brien said.
Wagar said the dropped plans include about two-thirds of the small businesses served by Empire in the state, while about 10,000 employers are covered by the plans that will remain. Empire, a subsidiary of Indiana-based WellPoint Inc., has about a 15 percent share of the state”™s small-group market, he said.
Wagar said Empire”™s continued operating losses in that market drove the company”™s decision. Though published reports and a health underwriters trade group have said the state”™s requirement that insurance carriers receive prior approval from the state for premium rate increases ”“ a regulatory power restored by former Gov. David Paterson ”“ and the state”™s denials or reductions of proposed rate hikes forced Empire”™s withdrawal, Wagar said the state”™s action was not the cause.
“We were losing money for three years before prior approval took effect” at the start of 2011, he said. “That wasn”™t the main driver ”¦ Very quietly we have been losing money in the small-group business for about four years.”
Fewer companies are offering group plans and more employees are choosing not to continue their health coverage, leaving a large insured pool of “people who need it right now.” That resulted in a large increase this year in Empire”™s medical costs. “The pool has to stand on its own” rather than be “subsidized” by Empire, he said.
“It”™s accelerated with the recession but it”™s actually been a trend for several years,” said Wagar. Six to eight years ago, 60 percent of companies offered heath care coverage, compared to 40 percent now, he said.
Wagar stressed that Empire”™s move is not a full withdrawal from the small-group market. For employers with cancelled plans, “We expect that some of them will select some of our other options and some will go to our competition.
“We are committed to the small-group market,” he said.. “We plan to regroup and bring back new approaches in 2013” to bring back small companies to Empire and group coverage.
Empire”™s move ”˜Catastrophic for the market”™
In Westchester, Empire dominates the small-group market along with Oxford Health Plans, a United Healthcare subsidiary, according to insurance professionals here. James L. Newhouse, president of Newhouse Financial and Insurance Brokers in Rye Brook, estimated Empire has a 30 percent to 40 percent share of the county market, whose other major players are Aetna and EmblemHealth.
“They”™re essentially pulling out of the small-group marketplace the products that are the most competitive and leaving behind the products that are least competitive” in pricing, said Newhouse.
“Of the carriers that are left, they will have no reason to not jack up their rates” with less competition. In the future, Newhouse said, most small businesses squeezed by rising premium costs are likely to opt for government-subsidized coverage in the state insurance exchange that will be implemented as part of the federal health care reform legislation.
“What Blue Cross has done is upset the apple cart. And it”™s catastrophic for the market,” he said.
James Schutzer, vice president at J.D. Moschitto and Associates Inc., an employee benefits consulting firm in White Plains, is on the executive committee of the New York State Association of Health Underwriters, a group that has asked to meet with state Department of Financial Services Supt. Benjamin M. Lawsky to discuss responses to the “devastating disruption” of the small-group market with Empire”™s withdrawal. “I think the impact is going to be huge for small businesses in downstate New York,” he said.
“You have very few carriers now vying for the small-business owner,” said Schutzer. “Less competition could lead to higher prices (and) less product innovation.”
Both Schutzer and O”™Brien pointed to the impact on businesses and their employees of Empire”™s fixed April 1 cancellation date for the plans, regardless of when a group”™s coverage year is due to expire.
The early cancellation “is the part that”™s most distasteful and disturbing and it”™s really going to rock a lot of worlds out there,” said O”™Brien.
At Rye Hospital Center, “This sort of took us for a loop,” said John Marcogliese, the psychiatric hospital”™s chief financial officer. The hospital has offered employees a choice of two Blue Cross plans that Empire will drop.
“We”™re probably one of the few organizations in America that pays for the employees”™ premiums” in full, he said. With the expected increase in plan costs, “It”™s going to hurt us a little bit financially but we”™re going to hopefully still be able to provide the service to the employees free.”
The change of group plans, though, could result in higher deductibles that keep employees from seeking health care, he said.
At deadline: Refunds on the way
Eleven insurance companies in New York will refund $114.5 million to holders of policies covering 573,748 people overcharged for health insurance premiums in 2010.
The mandatory refunds were announced by Gov. Andrew M. Cuomo. They result from a 2-year-old state requirement that insurers spend 82 percent of collected premiums on medical care or refund the difference between that amount and any lesser amount spent for medical costs.
The largest share of the refunds, $44.7 million, will go 141,829 employees covered in the large-group market. Another $25 million will return to 290,520 employees enrolled in group plans at small companies.
The remainder will be refunded to insured individuals, enrollees in the state”™s HealthyNY program and persons with supplemental Medicare policies.
