General Business Issues

Health Plans Work to Counter Ailing Enrollment Among Small Employers Jolted by Economy

Featured Health Business Daily Story June 12, 2008

Reprinted from HEALTH PLAN WEEK, the industry's leading source of business, financial and regulatory news of health plans, PPOs and POS plans.

By Steve Davis, Managing Editor, (sdavis@aispub.com)

The sputtering economy is prompting more small employers to either trim health benefits or drop coverage completely. While several health plans have acknowledged shrinking small-group enrollment since the beginning of the year, some industry observers say the situation could be an opportunity for insurers to strengthen relationships with their smallest clients.

Health plans tend to pay closer attention to their large clients than to the small-group market, says Scott Leavitt, a Boise, Idaho-based insurance broker and incoming president of the National Association of Health Underwriters. But among all U.S. employers, the average number of employees is only 12, he says.

Since September, the percentage of small employers that don't offer health coverage has jumped from 29% to 34%, according to the 2008 American Express OPEN Spring Monitor, a semiannual survey of small-business owners. And over the past six months, 20% of employers say they have been shopping for a new carrier to secure a better rate. Several publicly traded health plans say they are feeling the hit.

In its April 30 first-quarter earnings call, Health Net, Inc. officials noted that enrollment in its small-group segment had declined since Dec. 31. During UnitedHealth Group's April 22 first-quarter results call, President and CEO Stephen Hemsley said the economic downturn "has put additional pressure on the already price-sensitive small-group market." To protect its margins, Hemsley told investors, the company would increase its base rates for those small employers and limit its "new business discounts."

Over the past several years, Assurant, Inc. has reported steady enrollment declines in its individual and small-group business. The company ended the first quarter of 2008 with 838,000 members, down from 917,000 a year earlier and from 975,000 on the same date in 2006. Assurant spokesperson Peter Duckler says the company and other carriers are looking at ways to repackage individual medical (IM) policies and offer them to small-business owners. Although the employer typically doesn't pay for this kind of coverage, the arrangement allows the employee to pay for the individual coverage through payroll deduction.

While Coventry Health Care, Inc. reported an overall dip in risk-based enrollment in the first quarter, the decline was offset by a 10,000-member increase (about 2%) on the small-group side of the business. In its April 25 earnings conference call, Coventry Chief Financial Officer Shawn Guertin called the small-group market "a rational environment where [health plans] that have a low-cost structure, are disciplined and close to the details and fundamentals of the business will succeed over the long haul." He added that the small-group market is "the most competitive" market segment.

Since Jan. 1, Empire BlueCross BlueShield (a WellPoint, Inc. company) has been selling its "Prism" product to New York employers with 200 or fewer employees. The coverage includes first-dollar preventive coverage and access to a suite of health and wellness offerings such as health club discounts, vision care and nurse help lines. The premiums vary by region. The individual premium is $250.74 per month for someone in Albany, N.Y., who wants the $35 small-group copayment option and picks a generic-only drug card.

In the first quarter of 2008, Aetna introduced its individual product in five new states. The product is now available in 30 markets, the insurer said. The company also has made its health reimbursement arrangement (HRA)-based plan available to the small-group market.

One of the primary reasons CIGNA Corp. acquired Great-West Healthcare was to "improve our presence in the small-group [51 to 250 lives] market," says CIGNA spokesperson Joe Mondy. "In that space, Great-West has a strong presence." Now that the acquisition has been finalized, the insurer says it will incorporate its cost-savings programs, such as disease management, into the Great-West book of business. The company also says that combining provider networks will help it secure better discounts for small employers.

According to the American Express study, 9% of small employers have asked employees to pay a larger share of their health coverage costs over the past six months. Leavitt says health plans should help their clientsidentify ways to minimize coverage cost increases. Small employers, he says, are increasingly switching to high-deductible plans that are compatible with a health savings account (HSA). Such plans, he adds, encourage employees to pay closer attention to the cost of their health care services and prescription drugs. Other employers are moving to Section 125 cafeteria plans (through which employees select from a "menu" of benefits) that allow employees to use pretax dollars to pay premiums.

But new products and redesigned plans might not be enough. Although small-business owners understand the value of offering health coverage, some of them feel that they no longer have a choice. Health coverage is one of their top expenses, but unlike other costs, such as inventory and payroll, insurance might be the only expense that employers can control by reducing or eliminating it, says Alice Bredin, small business advisor to American Express OPEN. Health plans, she says, should reach out to their small-group clients to acknowledge the rising cost of health coverage and the effect that the shaky economy is having on them. The plans could offer strategies to help their small-group clients retain coverage, she adds.

One tip might be to offer strategies to communicate cost increases to employees. "Business owners need to convey that health coverage is expensive for a small employer, but it's stratospheric for an individual" to purchase his or her own health coverage, Bredin says.

Health plans also need to warn employers about going too far when reducing coverage benefits. If they trim too close to the bone, key employees might leave. "Anything health plans can do to help their clients weather this economy is going to make those customers more likely to keep coverage," Bredin asserts.

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