A reform debuting in Maryland this week and intended to make health insurance more affordable to hundreds of thousands of people who work in small businesses could have the opposite effect.
Just days before it begins, only a handful of new benefits packages were on the market until last week, and businesses whose insurance policies run out July 1 found their choices severely limited. Prices for new policies are coming in higher than expected, and some of those who sell insurance worry that clients could drop coverage altogether.
Salespeople and businesses whose insurance policies expire Friday are awash in confusion.
The reform, which requires insurers to offer small groups a standard package of benefits at a uniform rate that can vary only based on age and location, was enacted by the General Assembly in 1993.
Advocates say that despite initial confusion, the reform will make insurance more accessible in the long run to the 650,000 Marylanders now without it.
The law stops insurers from setting rates pegged to medical conditions or refusing coverage for pre-existing medical problems and protects the consumer from large rate increases or loss of insurance when they change jobs.
But critics say prices are likely to rise for everybody, at least for the first year or two, and that could hurt businesses that employ between two and 50 people.
"It's hard to predict what is going to happen, except that some clients' prices increased. That's unfortunate. There are some unintended anomalies to come from it," said Ancelmo E. Lopes, vice president of Prudential Health Care Plan of the MidAtlantic, a leader in small group insurance, with 10,000 members.
"This is hard to read, hard to tell. We are concerned about what the end result is going to be . . . whether we will be priced well, I don't know. Is that business going to grow? I hope so," he said.
What appears certain is that it will be months -- or even years -- before the impact of the new law can be assessed and revamped if needed.
And as Congress and the nation debate national health reform, the Maryland experience indicates just how complicated it is to try to fix even a small part of the system:
* The reform is supposed to result in prices low enough to attract small businesses on a voluntary basis, but initial reports are that some new products cost more for some customers than what's available now. This is because insurance companies are guessing what their costs will be the first year and pricing high to protect themselves. When this happened in New York, tens of thousands of people dropped out of the insurance market.
* Many small businesses still aren't aware of the reform. A bigger potential snag is that businesses that employ more than 50 people are beginning to discover that they, too, are affected because of the law's wording.
* Residents of Carroll and Harford counties, where medical costs are more aligned with those in rural parts of the state, are lumped with the Baltimore metropolitan region and thus could experience double sticker shock.
(Maryland Insurance Commissioner Dwight K. Bartlett III said his agency reasoned that many residents work in Baltimore and use medical facilities there.)
* Because the plan is voluntary, some insurance brokers worry that it will prove attractive only to medically needy people who couldn't get insurance until now or who paid extraordinarily high rates.
That, in turn, would further drive up rates. "The hope is obviously that enough of the small employers will find the whole package attractive enough [that the cost of those coming into the pool will be spread across a large base and prices will drop]," said Mr. Bartlett.
"If, on the other hand, people decide this is not a good deal and employers opt in only if they know they have medical needs, it is going to be a problem," he said.
He said insurance regulators, too, can only guess what costs will be, and in approving first-year rates, are largely on the lookout for obviously outrageous calculations. Under the new law, companies must spend at least 75 percent of the premiums they collect on health care for subscribers.
Part of the confusion is a delay in approving policies and rates from about 50 insurance companies that proposed them. Insurers submitted them in May and regulators had only 60 days to approve them, leaving little time for the distribution system to translate them to customers that renew July 1. New policies from 14 insurers or their subsidiaries were out by late last week.
"Everybody is antsy now," said Stewart Lavelle, senior vice president and general manager of U.S. Healthcare. When similar reforms were introduced in New Jersey, he recalled, "there was a tremendous amount of communication problems."
In recent months, some insurance salespeople have advised healthy groups to renew before this week to lock in their current rates for a year.
But others, including William F. Simmons, president of Group Benefit Services Inc. of Lutherville, a third-party administrator with $45 million in annual small-group insurance, have advised clients not to panic. He acknowledges that people who are paying above-average rates will want to switch as soon as
possible after July 1.
But group rates depend on where the business is located and its average age, and it could be to a group's advantage to wait until a policy comes up for renewal in August, November or December, he said.
"Perfect bodies" -- healthy young people who got deep discounts because of past medical underwriting -- will pay more, Mr. Simmons says, while people like him, 53 and with high blood pressure, will see rates drop.
But he says he is confident reform will have a moderating influence on rates despite the initial fat built in by insurers who don't know what kinds of risks they will attract.
In the past, if someone in a group had an accident or developed cancer, the family rate would skyrocket from $300 a month to $1,500 a month and no other company would take the group. Now, Mr. Simmons said, "The big advantage to the consumer is going to be this: they can now shop the program around. And under the new law, the insurer not only has to do it, but at the community rate."
Adds Mike Ward, a principal of Academy Financial Inc., financial planner and benefits manager in Lutherville: "There are definitely some carriers that are better than others. With this reform, it is going to be easier to compare apple to apple, and a lot of it will come down to the carrier's [reputation for service]," he said.
Who's affected
The law applies to small businesses of two to 50 "eligible" employees. An eligible employee is someone who works more than 30 hours a week and isn't otherwise insured by a spouse.
That means a company of 120 people could be required to switch to the new policy if, say, 40 of its workers were insured through their spouses and the remaining 20 are part-timers.
"Some people are asleep at the switch," said Dennis B. Mather, co-owner of Mather & Morgan Group Insurance Services Inc. of Lutherville. "The issue is, it is not simply how many employees you have."
How the rates work
Under the new law, insurance carriers can no longer vary rates by the health of the group or the type of industry it is in. Instead, the rates can vary only by the age of the group or by the business' location, with groups paying more where medical care costs are higher.
Initially, people can't be charged more than 50 percent higher or lower than the community rate approved by state regulators for that company. The differential drops to 16 percent after four years, when the insurance commissioner must decide whether to go forward with pure community rating and drop the allowances for age and geography altogether.
Prices
For the moment, healthy consumers who stay in the market will probably find themselves paying more for less.
In more cases than not, the price of insurance is expected to increase because insurers now have to take anyone who applies, including the sick they once avoided.
In addition to more people with medical needs in the general pool, things such as the elimination of policies with $1,000 or higher deductibles for small business in preference of the $250 or $500 in the approved plan alone could drive up the price for some businesses.
How much it increases depends on whether an employer wants to take the new standard benefit package or an upgrade comparable to what they have now.
Late last week, insurance salespeople reported comparable ,X base prices for two big companies that began selling first, Blue Cross and Blue Shield of Maryland and Optimum Choice Inc.
A sample of groups renewing July 1 with Blue Cross revealed increases of up to 85 percent for comparable coverage, some salespeople reported. At the same time, however, prices on the Blues' HMOs were coming in lower than what their clients now pay, a situation that could entice more people into managed care. "The message is loud and clear from the Blues they want us to move [customers] to the HMOs," said Mr. Ward of Academy Financial. "It remains to be seen what a lot of people will do."
John M. Colmers, executive director of the Health Services Cost Review Commission, which devised the benefits package, said the panel will monitor prices and, if they are higher than what actuaries expected, would "go back and make the plan less rich."
He said actuaries estimated prices would fall even after adding 5 percent to 8 percent for new medical risks expected from the plan.
One thing likely to happen, some insurance salespeople say, is that the initial high price could drive some employers to buy group coverage only for sick workers and cheaper individual coverage for the healthy, a scenario that further drives up the price.
"As long as participation is not 100 percent, the healthy people are going to get individual coverage, which the employer will pay for," said Lynda Sussman, co-owner of C.O.B., employee benefit specialists in Towson. "The other thing employers are doing is giving employees $100 bucks [a month] and saying 'here, go buy your own.' "
One fear is that small businesses will stop buying insurance as prices rise. But many salespeople believe health benefits are too important in hiring to be dropped.
"I think as we move much closer to [pure] community rating that could happen," said Mr. Mather, the Lutherville benefits expert. "Under this scenario, some people might drop out. But remember, you are looking at rates for young males going up from $80 to $120 -- that is hardly expensive. Somebody else's $300 rate is coming down to $250."
Instead, he and others see the reform as a way for employers to control rising health care costs, both because of the new oversight on rates and because of the expected move ment into managed care plans.
Employers also could react by choosing the new minimum benefit plan or by retaining better benefits but shifting more of the cost to employees. This is what happened last week at Cornerstone, an advertising, public relations and graphic design firm in downtown Baltimore.
Greg Des Roches, president of the 21-employee firm, wanted to keep a luxury benefits plan for employees, he said. The renewal price from Blue Cross came in 20 percent higher. A comparable product from Lincoln National (also known as Employers Health Insurance) came in 20 percent lower.
He is leaning toward the Lincoln product, he said, despite high satisfaction with Blue Cross service.
Employees would have fewer doctors to choose from and would pay a higher deductible -- $500 instead of $200 -- but it would cost less to go out of the network. "It pays to shop," Mr. Des Roches said.
Highlights of standard coverage plan
Starting Friday, insurers selling to small groups in Maryland will be required to offer a standard health insurance plan. Small businesses that offer it to workers are not required to pay for any or all of it. The benefits can be obtained through four different delivery systems: indemnity; a preferred provider organization -- a network of doctors; a point-of-service plan, in which all care is controlled by a primary care physician; and a health maintenance organization, in which the patient gets all care from providers hired by the HMO. Here are highlights of what coverage is provided:
* Unlimited hospitalization.
* Emergency room. $35 co-payment if patient not admitted.
* Outpatient hospital services and surgery.
L * Outpatient laboratory and diagnostic, with $20 co-payment.
* Hospice care.
* Pregnancy and maternity services, including abortion.
* Family planning.
* Infertility services, excluding in vitro fertilization.
* 25 in-patient days for mental health and substance abuse.
* Prescription drugs. $150 deductible and a co-payment of up to $15.
* Bone marrow, cornea, kidney, lung and heart transplants.
* Child wellness visits up to the age of 2 with a $10 co-payment.
* Up to 100 days in a skilled nursing facility as an alternative to covered care in a hospital.