Los Angeles Times Staff Writer
February 13, 2007
The flap is the latest example of how high health costs and changes in the marketplace are eroding the availability of group coverage.
"We were abruptly notified -- by mail -- that our insurance coverage was being canceled," said association President Colleen Badagliacco. "Families are scrambling unsuccessfully to find replacement coverage."
The healthcare of some members may be interrupted if they are unable to line up replacement coverage by May 31, the termination date set by Blue Shield, Badagliacco said.
"Blue Shield has shown a callous disregard for the more than 8,000 people who will be stranded without medical coverage and has refused to engage in any meaningful discussions," she said.
Blue Shield contends that the association failed to live up to a provision in the contract requiring 75% of its members who obtain health insurance through the group to purchase the Blue Shield plan, said David Seldin, a spokesman for the company. Once the participation dropped below that threshold, he said, it triggered the cancellation.
Seldin said Blue Shield notified the association in December of its decision to cancel the contract but was giving its members several months to line up new coverage.
Seldin said the 75% participation requirement was "important because in any contract you need to ensure that you are insuring the full range of individuals so that risk is shared broadly and risk be kept at a reasonable level."
But a lawyer for the Realtors association said it had far more than 75% of its eligible members in the Blue Shield plan.
"We think we are actually at 99% participation," said Debra Ferrier, the association's assistant general counsel.
Blue Shield covers more than 3 million people in California on a variety of plans. The Realtor group is Blue Shield's only guarantee issue association plan in the state. Such plans were created to allow access to guaranteed coverage for contract workers and other free agents, such as Realtors, who must purchase insurance on their own.
In contrast to individual coverage, a guaranteed issue plan will cover every member of the group in question, regardless of the person's medical condition.
By law, a guarantee issue association plan requires a certain level of participation to ensure a broad mix of members, which helps spread the risk. The reason is that such plans are susceptible to so-called adverse selection -- a concentration of less-healthy members -- when individual medical insurance available on the open market lures away healthier and younger members with low premiums.
As the concentration of sicker, higher-cost members increases, premiums rise, pushing out more members who can find cheaper coverage elsewhere. This is known in the insurance industry as a death spiral, and can kill a plan.
A hearing on the Realtor association's request for a court order temporarily stopping the cancellation is set for March 14 in Los Angeles County Superior Court.
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