Consumer-Directed Care

Featured Health Business Daily Story February 4, 2008

Some Calif. Health Plans Use Questionable Tactics to Thwart HRA Wrap-arounds and Steer Employers to More Profitable Products

Reprinted from INSIDE CONSUMER-DIRECTED CARE, a biweekly newsletter with timely news and insightful analysis of benefit design, contracts, market strategies and financial results.

A group of insurance brokers in California contend that health plans in that state are employing questionable tactics to stifle the marketing of “wrap-around” health reimbursement arrangements (HRAs), and steer employers instead to more profitable products. But the health plans maintain that they are within their right to prevent outside firms from administering HRAs tied to their products.

Teresa A. St. Clair, a broker with Route Three Insurance and Financial Services, based in Paso Robles, Calif., suggests that some health carriers are trying to preserve profit margins by steering small groups toward high-deductible products that have higher premiums and no HRA option. “Carriers are dealing with the loss of premium by telling agents what plan the HRA can be paired with,” St. Clair says.

At issue are policies that restrict the availability of stand-alone HRAs sold independently of a carrier’s benefit plan, generally a high-deductible product. Interest in these wrap-around HRAs is growing as self-funded small groups seek ways to rein in premiums and health care costs, sources tell ICDC.

While most carriers market qualified high-deductible health plans (HDHPs) with HSAs, some of them restrict the use of HRAs to a limited number of products. Blue Cross of California, Health Net of California, Inc. and Kaiser Permanente require self-insured companies to sign a form acknowledging that the employer will not offer its employees a wrap-around HRA except as they are available with designated products.

Blue Cross of California markets one high-deductible product with an HRA, while Kaiser offers two HRA-based products and Health Net markets one HRA product.

Steering to Preserve Profit

In mailings to health insurance brokers and agents that were obtained by ICDC, several California health plans issued directives to limit the marketing of wraparound HRAs with their products. Blue Cross of California issued a clarification about small-group, self-funded arrangements informing agents that HRAs are allowed only for existing exclusive provider organization (EPO) plans.

“If a group at any time provides a self-funded or HRA arrangement for any portion under any other plan…the agent will not receive a commission for the medical portion of the account,” the document from Blue Cross of California said. “Any deviation from this policy may also result in the termination of your agent contract with Blue Cross of California.”

According to Route Three President Ralph Weber, Kaiser is threatening to withhold agent commissions or cancel contracts with brokers beginning Jan. 1, 2008, if they set up a wrap-around HRA program for their clients.

“Strong-arming is exactly what the carriers are doing,” says Mark Reynolds, president of Ben-e-Lect, a third-party administrator (TPA) based in Visalia, Calif. “They are threatening broker commissions and contracts if clients put in an HRA” marketed separately from the carrier’s benefit plan.

Information ‘Choke Hold’ Alleged

Critics charge that the carriers are improperly browbeating brokers into withholding complete information from their clients, and in some cases are prohibited from disclosing less expensive health benefit products.

“They’re putting a choke hold on what plans employers can use,” says St. Clair, who filed a complaint on the matter with the California Department of Insurance, which regulates health plans in the state.

But representatives from health carriers contend that they are within their prerogatives to determine how their products are sold and who administers the HRA component of their plans.

“We believe that our products work best when they are used together,” Kaiser Permanente spokesperson Meg Walker tells ICDC. “The way our company is designed, it gives a better member experience.”

Walker confirms that brokers face sanctions for not observing the policy. “We have underwriting guidelines, and we are reaffirming that the underwriting guidelines need to be used appropriately with our products,” she said.

Brad Keiffer, spokesman for Health Net of California, says that the company’s policy is meant to encourage members to be aware of their utilization of services. “For the higher-deductible plans to be effective, responsibility for payment of deductibles must remain solely with the member,” he says.

Dispute Dates Back to 1993 Laws

The dispute hinges on California health reform laws enacted in 1993. Provisions in the law empowering the Department of Insurance (DOI) and the Department of Managed Health Care, which regulates HMOs, are intended to ensure customers are given full and complete information about products that are available on the market.

Section 10705 of the state’s Small Group Reform Legislation says that carriers must “fairly and affirmatively offer, market, and sell all of the carrier’s benefit plan designs that are sold to, offered through, or sponsored by, small employers.” The law also requires agents to “advise the small employer of the carrier’s obligation to sell any small employer any of the benefit plan designs it offers to small employers.”

In addition, critics claim that the activities of health plans may be violating federal laws governing HRAs.

Walker denies that health carriers are doing anything improper. “I can assure you that our legal and regulatory people have looked at this,” she says. “We believe that we’re acting appropriately.”

Although not a health insurance broker, Reynolds says that he took up the fight over HRAs because the restrictive practices interfere with his business and he has nothing to lose. Blue Cross of California terminated his contract several years ago, and his company does no business with Kaiser, he says.

“No individual broker is willing to take on these carriers because they’d terminate their contracts,” Reynolds tells ICDC. “Individually, no agent is willing to step out of bounds and raise their hand. As a TPA, we decided to raise our hand and facilitate getting this information out to the public.”

Agents Fear Commissions at Risk

Reynolds established a Web site — agent.benelect. com — to inform brokers and employers about the issue.

Self-insured small groups have not complained about the restrictions placed on brokers because they don’t know about the issue, he asserts. “Most employers don’t even know this is going on,” says Reynolds. Small groups may be more interested in the matter if they thought they were being denied opportunities to reduce their health care costs, he adds.

“In some areas, we’re talking about significant differences in price,” Reynolds says. “There are some places in the state where Blue Cross’s $2,500 deductible plan is 25% lower than the $2,000 deductible plan.” An employer with Blue Cross of California’s $2,000 deductible plan, in which an HRA wrap-around is permitted, may ask at renewal time whether the carrier has anything with a lower price that will allow the company to use the same HRA, Reynolds says. But “you cannot tell them about their $2,500 deductible plan or $3,000 deductible plan because you’re fearful your commission would be taken away or your contract would be cancelled,” he asserts.

To date, the California DOI has not taken any official action into the matter.

“Federal law explicitly permits carriers to manage HRAs,” says DOI spokesperson Molly DeFrank. “Insurers are free to choose who administers an HRA.”

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