Health Insurers Balk at Some Changes

By Reed Abelson
The New York Times
June 2, 2009
The insurance industry says it wholeheartedly embraces a health care overhaul, promising Congress and the president that it will make it much easier for individuals to buy insurance on their own.
Insurers, for example, have agreed to sell policies even to people with pre-existing medical conditions, and to stop basing prices on how healthy or sick someone is.
But so far, the industry has made no such promises about another segment of the health insurance market, one responsible for many people being uninsured in the first place: the market for small employers. By some estimates, about half of the nation’s uninsured are people who are self-employed or work for a small business.
Employer-provided medical insurance remains the bedrock of the nation’s health care system. And yet, while most big employers still provide health benefits, soaring premiums have meant many small businesses can no longer afford to cover their workers. But the small-employer market remains one of the most profitable segments of health insurance, which may be why the industry is not eager to overhaul this lucrative part of the business.
… one of the biggest insurers, WellPoint, opposes changing the way coverage is sold to small employers.
“Those markets generally work today,” said Bradley M. Fluegel, the chief strategy officer for WellPoint, which is a big operator of Blue Cross plans and a major player in the small-business market.
Much of the Congressional talk about health care has not yet focused on what federal oversight, if any, might be necessary for the small-business market. Proposals before the Senate Finance Committee seem to envision the same kind of rules for both the individual and small-business markets.
Mr. Fluegel, the WellPoint executive, warned that if the federal government intervened in the small-business market so that insurance companies could no longer assign the highest premiums to employers with the highest medical costs, insurers would be forced to spread the costs over all their small-business customers.
http://www.nytimes.com/2009/06/03/business/smallbusiness/03insure.html?ref=business&pagewanted=all

WellPoint/Anthem/Blue Cross has become the largest provider of private health plans through its highly successful business model that has kept their premiums very competitive. How have they done that? In the individual market, they have limited their exposure to risk by medical underwriting – not selling policies to individuals who might need health care. In the small-business market, they also limit loss by increasing premiums to unaffordable levels for any business that has an unfavorable claims experience, causing those firms to drop coverage.
The insurance industry’s offer to agree to guaranteed issue in the individual market is dependent on a mandate to require every uninsured individual to purchase insurance. That would distribute risk broadly even if it doesn’t specify how such coverage could be paid for. Guaranteed issue has been opposed by WellPoint since it is not compatible with its business strategy of selling only to the healthy.
What about guaranteed issue in the small-business market? Since current proposals also would permit the continuation of the employer-sponsored market, insurers such as WellPoint would remain successful only if they could continue to use underwriting and premium flexibility in the small-business market. If they were required to issue coverage to every small business that applied, then they would have to have a mandate for all small businesses to purchase coverage. Though that would distribute risk more evenly in the small-business market, it still would defeat WellPoint’s successful strategy of keeping premiums competitive by selling their products to healthy individuals and only to small businesses with healthy employees.
WellPoint worked very hard to defeat reform efforts in California since it would have destroyed its dominance as the insurer of the healthy. There is every reason to believe that WellPoint likewise will oppose reform on a national level if Congress includes measures that would require private insurers to participate in a regulated social insurance program.
Yesterday President Obama told Democratic Senators that he would like Congress to take broad action before the August recess. Can you imagine Congress creating a program of private sector social insurance by then? Right now I’d rate WellPoint stock a very strong BUY!

By Reed Abelson
The New York Times
June 2, 2009

The insurance industry says it wholeheartedly embraces a health care overhaul, promising Congress and the president that it will make it much easier for individuals to buy insurance on their own.

Insurers, for example, have agreed to sell policies even to people with pre-existing medical conditions, and to stop basing prices on how healthy or sick someone is.

But so far, the industry has made no such promises about another segment of the health insurance market, one responsible for many people being uninsured in the first place: the market for small employers. By some estimates, about half of the nation’s uninsured are people who are self-employed or work for a small business.

Employer-provided medical insurance remains the bedrock of the nation’s health care system. And yet, while most big employers still provide health benefits, soaring premiums have meant many small businesses can no longer afford to cover their workers. But the small-employer market remains one of the most profitable segments of health insurance, which may be why the industry is not eager to overhaul this lucrative part of the business.

… one of the biggest insurers, WellPoint, opposes changing the way coverage is sold to small employers.

“Those markets generally work today,” said Bradley M. Fluegel, the chief strategy officer for WellPoint, which is a big operator of Blue Cross plans and a major player in the small-business market.

Much of the Congressional talk about health care has not yet focused on what federal oversight, if any, might be necessary for the small-business market. Proposals before the Senate Finance Committee seem to envision the same kind of rules for both the individual and small-business markets.

Mr. Fluegel, the WellPoint executive, warned that if the federal government intervened in the small-business market so that insurance companies could no longer assign the highest premiums to employers with the highest medical costs, insurers would be forced to spread the costs over all their small-business customers.

http://www.nytimes.com/2009/06/03/business/smallbusiness/03insure.html?ref=business&pagewanted=all

Comment:

By Don McCanne, MD

WellPoint/Anthem/Blue Cross has become the largest provider of private health plans through its highly successful business model that has kept their premiums very competitive. How have they done that? In the individual market, they have limited their exposure to risk by medical underwriting – not selling policies to individuals who might need health care. In the small-business market, they also limit loss by increasing premiums to unaffordable levels for any business that has an unfavorable claims experience, causing those firms to drop coverage.

The insurance industry’s offer to agree to guaranteed issue in the individual market is dependent on a mandate to require every uninsured individual to purchase insurance. That would distribute risk broadly even if it doesn’t specify how such coverage could be paid for. Guaranteed issue has been opposed by WellPoint since it is not compatible with its business strategy of selling only to the healthy.

What about guaranteed issue in the small-business market? Since current proposals also would permit the continuation of the employer-sponsored market, insurers such as WellPoint would remain successful only if they could continue to use underwriting and premium flexibility in the small-business market. If they were required to issue coverage to every small business that applied, then they would have to have a mandate for all small businesses to purchase coverage. Though that would distribute risk more evenly in the small-business market, it still would defeat WellPoint’s successful strategy of keeping premiums competitive by selling their products to healthy individuals and only to small businesses with healthy employees.

WellPoint worked very hard to defeat reform efforts in California since it would have destroyed its dominance as the insurer of the healthy. There is every reason to believe that WellPoint likewise will oppose reform on a national level if Congress includes measures that would require private insurers to participate in a regulated social insurance program.

Yesterday President Obama told Democratic Senators that he would like Congress to take broad action before the August recess. Can you imagine Congress creating a program of private sector social insurance by then? Right now I’d rate WellPoint stock a very strong BUY!