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Health-care crisis: big blue struggles for survival; some small groups feel the squeeze.

Health-Care Crisis

There's a small business in Arkansas struggling to maintain health-care insurance coverage for its 11 employees. Arkansas Blue Cross and Blue Shield insures the business, but Big Blue is struggling in the face of cumulative losses of $23 million in 1987 and 1988.

During the past year, one individual covered under the business' group plan had skin cancer removed. Another person took medication for depression. There also were a few other relatively minor claims.

The firm paid total premiums to Blue Cross of about $20,000 in 1989, but Blue Cross says covering the group cost it 63 percent more than premiums paid in. Next year, Blue Cross says projected losses for the 11-member group could reach 94 percent more than a modified total of premiums paid.

To make ends meet, Blue Cross has doubled next year's insurance premiums for the group to $350 per month per family and $180 per month for coverage of individual workers. Besides higher premiums, Blue Cross and Blue Shield placed the company into a new category, requiring that each covered employee and their family members answer a medical questionnaire.

Based on their answers, an individual or family may not be included for coverage in the group plan. In that case, they would be offered non-group Blue Cross and Blue Shield coverage at a rate for an individual of $445 per month with a $100 deductible or $301 per month with a a $1,000 deductible.

For family coverage, the cost is a staggering $823 per month, $100 deductible, or $556 per month with a $1,000 deductible.

The company and the incident is real, but it is still negotiating with Blue Cross for coverage and doesn't want its name mentioned for fear of worsening an already difficult situation.

From Blue Cross and Blue Shield's perspective, the carrier is still offering coverage. But from the viewpoint of the business, the price may be too high. In a nutshell, the company's experience typifies the squeeze between businesses seeking healthcare coverage and carriers who say they are going broke insuring them.

But Where Is The Loyalty?

The scenario raises several questions:

* Where is the loyalty of Blue Cross and Blue Shield to its long-time customers?

* What happens to the relationship between the employer and trusted employees forced to get health insurance on their own?

* Will the individual worker be financially devastated by out-of-sight medical bills?

* Will the employer be able to hire and retain quality workers without an adequate group health plan?

In order to survive, Blue Cross and Blue Shield is making changes.

"Some of the fine tuning we're doing has enabled us to continue to offer products to a broad base of the community and to continue to be financially viable while we do this," says Mark White, SVP/CFO of Arkansas Blue Cross and Blue Shield.

The company is not the only healthcare insurer writing policies in Arkansas and experiencing difficulties. It is, however, the largest writer of group health insurance in the state, extending its coverage to about 25 percent of all eligible state residents.

Big Blue, Big Losses

Blue Cross and Blue Shield experienced net losses of nearly $5 million and $18 million in 1987 and 1988. In 1989, the losses turned around with net income of about $2 million.

Consolidated Groups

As of Jan. 1, Blue Cross and Blue Shield changed the size for one of its groups to 3-14 members, replacing the previous category of 3-9 members.

White says the goal was to expand the pool of people insured within small groups to calculate more predictable rates. Every group within the 3-14 member category, which has the same coverage, will pay the same premiums.

Within the new category, groups with 10-14 members will pay premiums based on all the groups within the category. Previously, they paid based primarily on the amount of claims they made.

As part of the risk-sharing nature of being in a pool, the company mentioned in the example above was billed $6,000 for its share of the large claim and organ transplant pool. On one hand, it is easier when the cost of insurance is shared among all pool members. But some insurance executives say the charge is exorbitant and was included on very short notice.

Within the 3-14 category, Blue Cross and Blue Shield has 11,500 contracts covering 26,200 members.

While Blue Cross and Blue Shield touts the benefits of their adjustment, others note that groups 10-14 are taking the brunt of the corrections and may be helping the insurance company regain its losses over the years.

But White says the company has never employed any strategy to try to recoup its money from any individual category.

Canceled Coverage

Prior to this year, Blue Cross and Blue Shield canceled certain group coverage for customers, at least one of which had been with the healthcare insurer for more than 30 years.

"I support Blue Cross's contention that many of the companies [its health insurance competitors] are trying to dispose of the unfavorable risks and retain only those which are profitable," says Warren Smith, VP of Werntz & Associates, an actuarial and employee benefits consultant at Little Rock.

"The problem extends beyond Blue Cross and Blue Shield. We've got a crisis in Arkansas and in the nation for small employers because there are so many who can't get insurance for their employees," he says.

"People have to have availability of healthcare. In a civilized society, we can't deny basic healthcare to people who don't have the money," Smith says. "We've got to make it available on a reasonable basis."

"To a large extent, health insurance companies have abrogated their social responsibility, and they blame problems on each other," Smith says.

If they don't correct the situation themselves, the government is going to do it for them. Insurance companies have got to get together to see how they can do it on a reasonable basis, he says.

With unstable rates and the real possibility of being canceled by long-time insurers, affordable health insurance can no longer be taken for granted, especially for smaller companies seeking it as a fringe benefit for their employees, insurance experts say.

"There is a false sense of security for small companies," says Steve Madigan, VP at Seabury & Smith, a Little Rock division of Marsh & McLennan, insurance brokers and consultants.

Legislative Changes

There are proposals being considered by members of the Arkansas General Assembly that could help alleviate the situation, says John Greer, Blue Cross and Blue Shields SVP for marketing and public affairs.

* Under one proposal, small businesses would be allowed to buy healthcare coverage without including any coverage features mandated by the state. Currently, Arkansas requires, among other coverage, that well-baby care, mental health benefits and in-vitro fertilization (which can run as high as $15,000) be part of health-care plans.

The proposal would focus more on coverage of catastrophic illness and less on routine coverage of relatively minor illnesses.

* Another measure would set up a high-risk pool for providing insurance to individuals who could not obtain it from a carrier because of their personal medical history.

"We have lost sight that health insurance was designed to protect against catastrophic loss compared with today's policies that are very comprehensive after a reasonable deductible," says Greer.

Without getting state legislation enacted, "it could be financially devastating to individuals to lose their health insurance," says Frank McGehee, president of McGehee & Associates insurance agency at Little Rock.

One incident of open-heart surgery, a premature baby or other expensive treatment can deplete savings and leave an individual destitute.

PHOTO : HEAVY BURDEN: New rules and the financial weight of higher Blue Cross-Blue Shield premiums for small businesses with 10-14 employees make it difficult for some companies to offer health insurance as a fringe benefit to their workers.
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Title Annotation:Arkansas Blue Cross and Blue Shield
Author:Kern, David F.
Publication:Arkansas Business
Date:Jul 16, 1990
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