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Health insurance options dwindle for self-employed

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A major source of health insurance for people who work for themselves is disappearing, casting thousands of contractors, freelancers and solo practitioners into the ranks of the uninsured with little hope of obtaining new coverage.

Health plans offered by professional associations were once havens for millions of people who couldn't get coverage anywhere else. But as medical costs have soared, groups representing professions as varied as law and golf have been forced to stop offering the benefit or been dropped by insurers.

More than 8,000 people with coverage through the California Assn. of Realtors could be next if Blue Shield of California succeeds with its plan to cancel the group's health coverage.

"It's a real stab in the heart," said Marcy Garber, 62, an Encino real estate agent whose history of breast cancer makes her an almost-certain reject if she seeks similar coverage on her own.

Although no one tracks association coverage to know how many plans have disappeared, the experience of Marsh Affinity Services is telling. A decade ago, Marsh, which brokers and administers the health plans, had 142 such clients. Today, all but three have shut down.

Over the same period, the nation's uninsured population, now estimated at 45 million, rose dramatically, fueled in part by the dearth of affordable options for the self-employed, experts say. Among uninsured workers, nearly 63% are self-employed or work in small firms, Todd Stottlemyer, president of the National Federation of Independent Business, told Congress recently.

Fewer than a quarter of 1,020 professional and small-business associations surveyed in February offer medical coverage, even though a majority of the groups said they would like to. The American Society of Association Executives, which commissioned the survey, views the issue as a crisis.

In its heyday, association health coverage was so popular that brokers touted it as a membership recruiting tool for professional organizations. The demise of the coverage is particularly problematic in states like California, experts say, where a raft of jobs -- including many in the service and entertainment sectors -- don't come with health benefits.

"The association business used to be a huge part of the group health insurance business," said Robert Laszewski, a Washington-based health policy consultant and former insurance executive. "Now, it's like the buggy whip business -- almost entirely gone."

Insurance carriers began pulling out of association markets about 10 years ago amid mandates requiring the groups -- like employers -- to offer coverage to all members who wanted to buy it, regardless of preexisting conditions. Unlike employers, however, who typically pick up the much of the premiums for employees, most associations do not share in the costs. Instead, they arrange for their members to purchase coverage at group, rather than individual, rates.

In today's marketplace, that's almost always a better deal for older members and often the only option for people with preexisting conditions. But insurers are eager to sell individual policies to the young and healthy for as little as $100 a month, scooping the cream off the risk pool. That leaves higher-risk older and less-healthy people to the group market, resulting in what is known as adverse selection.

As healthy members leave an association health plan, the concentration of members with higher-than-average medical costs increases. That forces the underwriter to raise premiums. A "death spiral" sets in, when medical costs exceed the plan's ability to raise premiums to cover them.

"The problem with associations is they go into a death spiral because they get the worst risk," said Alan Fox, vice president of plan design for the American Psychological Assn. Insurance Trust, which covered thousands of psychologists and their families for 35 years before discontinuing its health plan in 1999.

The list of casualties also includes health plans once sponsored by the American Bar Assn., which still hopes to resurrect the benefit it dropped last year, and the California Bar Assn., which lost its coverage when its insurer pulled out in the early 1990s.

Before the Professional Golfers' Assn.'s health plan ran into the rough, the group had extended coverage to about 1,000 members. But the plan was discontinued in 1996 as medical costs rose and younger, healthier members bought coverage on their own at lower rates.

"If you can get cheaper coverage through the individual market, that's what you do," said Mila Kofman, an associate research professor at Georgetown University's Health Policy Institute.

But not everybody can buy an individual plan. In many states, including California, insurance companies are allowed to reject applicants for individual policies for any medical reason, including common conditions such as asthma and varicose veins. As a result, many people who lose association coverage in effect become uninsurable.

Insurance options of last resort -- COBRA conversion coverage, whose name is an acronym for the federal legislation that created it, and publicly subsidized high-risk pools -- are not for everybody because the coverage is insufficient or unaffordable or both.

"If they don't have an opportunity to go to another group and have to go into the individual market, it's a real problem," said Kansas Insurance Commissioner Sandy Praeger, president-elect of the National Assn. of Insurance Commissioners.

That's what worries Garber, the Encino real estate agent. Garber doesn't know what she will do if she loses her coverage, which costs her $596 a month.

"I'm not what I would call every insurer's delight," she said. "I have to be in a group plan or I'm not going to have insurance. It never dawned on me I'd have any problem with this insurance."

Another real estate agent, Hector Aguirre, 39, of Rancho Cucamonga, also thought the group's coverage was safe. He pays nearly $1,000 a month for coverage for himself and his family. His wife has lupus and a daughter needs daily shots of an expensive growth hormone.

"I always thought it had more control and more pull because it's such a huge umbrella under the whole California Assn. of Realtors," Aguirre said.

Realtor Terry Lucoff, 60, of Malibu, who pays a monthly premium of more than $600, fears that if he loses his coverage he will be unable to obtain new coverage that will allow him to continue seeing his regular doctors because he has been diagnosed with a kidney condition.

"If they can do this to the California Realtors association, they can do it to anybody," he said.

The California Assn. of Realtors and its broker, RealCare Insurance Marketing Inc., contend that Blue Shield can't cancel the plan.

"It is against the law for Blue Shield to cherry-pick, i.e., to try to keep only the healthy employees, while cutting off those who need their health insurance most," RealCare alleges in a lawsuit.

Blue Shield says the law allows it to pull the plug if an organization violates the terms of its contract. It says that happened when the real estate group failed to enroll 75% of certain members in the health plan as its contract requires.

But the association and its broker accuse Blue Shield of inventing a way to calculate the enrollment to create a pretext for dumping them and their medical bills. They say that enrollment has been close to 99% for years and that Blue Shield never made an issue of it before.

"What's different about today?" asked Debra Ferrier, the real estate group's assistant general counsel. "I believe they probably looked at the plan, probably saw it wasn't very profitable, and they think they found a reason to cancel it. We disagree that they found a reason."

A court hearing on the dispute is set for April 6 in Los Angeles, and state regulators say they are looking into the matter.

Blue Shield spokesman David Seldin said the company noticed the purported enrollment problem only recently. He declined to discuss the finances of the Realtors' health plan, saying "it was not relevant to our decision, which was simply and completely about the fact that they were not in compliance with their contractual obligations."

Industry experts say the dispute may be symptomatic of the difficult economics and market pressures that have crippled and killed association health plans over the last decade. It also "reveals how fragile access to health coverage is and how easily that security blanket can be ripped away," said Cindy Ehnes, director of the California Department of Managed Health Care.

As havens for people with medical conditions, association health plans are especially vulnerable to rising medical costs, said Janet Trautwein, chief executive of the National Assn. of Health Underwriters.

"Costs are going up everywhere in every type of plan," Trautwein said. Associations "not only have the normal costs going up, but they have this adverse selection at the same time. It's a double whammy."

A few association health plans remain open. But they don't have to go belly up for members to be affected. When the International Institute of Electrical and Electronics Engineers' health plan ran into financial difficulties, for example, Ann McCormick of Glendora lost coverage.

The plan dropped McCormick in February when her husband, Bill, a member of the organization, turned 65 and became eligible for Medicare. Until recently, the plan had allowed such members and their dependents to remain enrolled and use the coverage to supplement the federal government's medical insurance program.

But when expenses outpaced revenue, resulting in a deficit of nearly $6 million, the engineers association decided last year that the option was no longer in its members' best interest.

The problem for Ann McCormick, 64, is she won't qualify for Medicare for several months. But recently diagnosed with diabetes, she discovered she was uninsurable in the private market.

"You plan to be financially independent after retirement, and then all of a sudden you have no insurance," said McCormick, a retired loan auditor. "You didn't plan on that. It's really scary."

Cigna, which carries the engineers organization's plan, also underwrites the group plan of an association of performers, writers and photographers known as TEIGIT. Saying that group's medical expenses were exceeding premium revenue, Cigna raised rates in January as much as 254% for members in California, prompting more than 150 of them -- about a quarter of its cadre in the state -- to drop the coverage.

"I couldn't afford it, so I quit," said Randy Dotinga, 38, a San Diego freelance writer whose premium was set to rise to $875 from $262.

lisa.girion@latimes.com

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