Empire Blue Cross Blue Shield, the state’s largest health insurer and one of the largest for small businesses, announced to health insurance brokers on Friday that it will eliminate most of its small group plans in the New York market effective April 1, 2012, and is slashing its financial incentives for brokers to sell those products—a move one industry insider has said would be “catastrophic” for the insurance marketplace.
In a statement, Empire, also the biggest insurer on the East End, said it will reduce the number of plans offered to small groups and will offer fewer PPO, HMO and EPO plans, but claimed it has no intention of withdrawing from the market—a point with which brokers disagree.
“The products that they’re withdrawing from the markets are the ones that were competitive. The ones that they’re leaving in the market are the ones that are less cost competitive. Effectively, they’re pulling out of the small-group marketplace,” Craig I. Hasday, the legislative chair of the New York State Association of Health Underwriters, the professional trade association representing health insurance brokers and employee benefits consultants, explained on Friday morning.
Mr. Hasday also claimed that Empire would “virtually eliminate” compensation to brokers, switching from a flat 4-percent commission to a $5 per contract per month basis. “That’s a dramatic cut,” he said.
Empire’s statement says it is sensitive to the economic challenges facing small businesses, and its goal is to offer affordable health insurance plans to New York’s small businesses—but that it has had financial losses in the small group business that it called unsustainable.
“Several factors are driving our need to increase rates: health provider charges have gone up; fewer small group employers and employees are purchasing coverage so those remaining face higher costs; we are experiencing the effects of adverse selection in our risk pool; and, there have been reductions in state subsidies that previously served to lower cost and premiums for certain mandated products,” Empire’s statement reads.
On Tuesday, Mark Wagar, the president and CEO of Empire, said the move was not simply a bargaining ploy, saying that the state has not yet acted on its requested rates. He also said the fact that Empire’s parent company, WellPoint, reported a profit of $4.7 billion in 2009, according to published reports, was unrelated to the recent decision.
Rather, Mr. Wagar said that Empire has been quietly losing money in its small-group business for the last four years.
“This has its origins in the continuing decline in the number of small companies that offer health coverage,” the CEO said. “And even within the ones that offer health coverage, more and more workers, because of the increasing medical costs that drive up premiums, elect not to purchase it.”
As for the businesses and clients, Mr. Wagar said that he expects many to remain with Empire and choose one of the continued products. He said in the long term, new affordable approaches and programs involving all the different stakeholders, including physicians and hospitals, will need to be introduced.
“This problem won’t go away until we find a way to get more small companies and individuals back into the marketplace to balance the pool,” Mr. Wagar said. He added that the issue is not unique to Empire.
Meanwhile, Mr. Hasday said Empire’s move would have a negative effect.
“It’s incredibly destabilizing, and it will drive the cost of insurance up, because without competition, obviously, the incentive for insurance companies to keep rates down is significantly depressed, and it will also limit choice for the consumer,” he said.
Officers of New York State Association of Health Underwriters sent a letter—of which Mr. Hasday was one of the signers—dated November 2, addressed to the superintendent of the State Department of Financial Services, stating concerns that a major carrier, which it did not mention by name, is withdrawing from the small group market because of rate request denials/reductions in the last five consecutive quarters. Mr. Hasday later confirmed that the letter referred to Empire.
“The major carrier’s pending withdrawal from the small group market is nothing short of catastrophic to small employers in the state,” it says. “Multiple small employers with literally tens of thousands of employees are going to be left without coverage, as there will be only two to three other carriers left in which brokers may try to place coverage. If the other carriers follow suit, the availability of coverage will dry up entirely.”