Blue Shield Gets Jump on New Law : Insurance: The firm cuts prices and revamps management to position itself for small-group health coverage legislation taking effect July 1.
Blue Shield of California, whose 3-year-old health maintenance organization controls barely 1% of the state’s managed-care market, has sharply cut prices and revamped its management structure in an aggressive effort to recruit more small-business customers.
Taken in isolation, the maneuverings of so tiny a blip on the health insurance radar screen might lack much significance.
But Blue Shield is one of numerous players that have identified California’s small-group market as a place where an insurer might not only expand its overall business but also hone some of the techniques that it will need to survive in the world after national health care reform.
Big changes are ahead for small-group health insurance in California, thanks to a law enacted last fall designed to encourage small-business owners to obtain coverage for their workers. The law takes effect July 1.
“The small-group legislation is the biggest single change in the California health insurance market in the last half-decade,” declared Jonathan Lewis, executive director of the California Assn. of HMOs, a Sacramento-based trade group.
It has been estimated that more than half of California’s 6 million uninsured residents are “working uninsured”--small-business employees and their dependents.
“This is the largest untapped market in health insurance,” said Richard Figueroa, deputy director of California’s Major Risk Medical Insurance Board.
The new law requires, among other things, that any insurer participating in the small-group market (defined initially as companies with five to 50 employees) must offer insurance to any employer that applies, regardless of its employees’ medical history or perceived risk of illness.
The law also contains pricing provisions meant to prevent insurers from “cherry-picking” only the healthiest customers.
Under the terms of the law, the state Major Risk Medical Insurance Board is structuring a statewide health insurance purchasing cooperative designed to give small employers the same kind of bargaining clout that big companies wield in shopping for health insurance.
It also aims to give employees of small companies a choice of health insurance plans, another benefit that many of those who work for big companies have long enjoyed.
Health insurance purchasing cooperatives--”hipics” in health policy parlance--are expected to be one feature of the changes envisioned for the nation by the health reform task force headed by First Lady Hillary Rodham Clinton.
The California pool will be the nation’s first such statewide purchasing cooperative for the small-group market and as such is being closely watched.
A measure of the insurance industry’s interest is that about 28 health plans have approached the Major Risk Medical Insurance Board about getting involved in the pool, Figueroa said.
Blue Shield is one of them.
Gary Morgan, Blue Shield’s director of small-group sales, said the insurer has made some major internal changes to position itself for the new law.
In January, after six months of planning, Blue Shield reorganized itself so that each business unit--small-group sales, for example--has direct authority over its own marketing, claims handling and other functions. Previously, such operations were handled centrally, which caused conflicts among different business units, Morgan said.
By bringing decision-making “down to the lowest possible level,” he said, the company hopes to improve its response time and cut costs.
Anticipating savings, Blue Shield this week notified its sales agents of price cuts in the small-group plans that range from 9% to 33%, effective April 1. Blue Shield’s prices had been slightly higher than average; the reductions were aimed at bringing its prices into the lower half or even the lower 25% of California carriers, Morgan said.
The goal is to more than double Blue Shield’s small-group membership from about 110,000 now to 300,000 within five years.
That would still leave Blue Shield a relatively small player in the California market dominated by carriers such as Kaiser Permanente, Health Net, Pacificare, Cigna and Blue Cross.
While Blue Shield has been making its moves, its competitors haven’t stood still.
Blue Cross, which in most states is affiliated with Blue Shield but is an independent competitor in California, has launched a major television and print advertising campaign targeting the small-group market.
Blue Cross plans for its CaliforniaCare network of health maintenance organizations to be a major participant in the statewide purchasing cooperative.
But, in Blue Cross’ television “sweater ads” featuring casually dressed CEO Leonard D. Schaeffer, a big message is that you don’t have to wait for July 1: Blue Cross is ready to sign you up today.
The insurer plans to add customers both within and outside the pool.
Blue Cross, Blue Shield and other carriers have already undertaken some of the reforms spelled out in the new small-group law.
Some observers believe that these steps could stand the insurers in good stead when the federal reforms finally materialize.
Besides purchasing pools, policy planners in Washington might also adopt pricing restrictions similar to those in the California law.
When the legislation passed last September, many observers expected that a number of smaller insurers would leave the market. But given the interest shown in the Major Risk Medical Insurance Board purchasing cooperative, it may be that others that previously weren’t very active in the small-group market will spot an opportunity, as Blue Cross did.
California HMOs
California is America’s largest market for health maintenance organizations, with total membership at about 9.4 million as of Dec. 31, 1991. Here is a look at the largest players.
Market Share: Kaiser: 49.9% Health Net: 9.1% Pacificare: 7.2% CIGNA: 4.4% Blue Cross: 4.0% FHP: 3.7% Foundation: 3.2% Aetna: 2.9% TakeCare: 2.5% Others: 13.1%
Source: California Assn. of Health Maintenance Organizations
New Insurance Law
Here are the key provisions of the Small-Group Health Insurance Law, which takes effect July 1 for employers with five to 50 workers.
* Forbids insurers from denying coverage to any employer, regardless of employee medical history or perceived risk.
* Enables small employers to buy coverage directly from insurers or through a large, state-administered purchasing cooperative that would offer employees a choice of plans.
* Requires insurers to keep prices within a “band” so that no employer pays more than 20% above or 20% below the insurer’s average premium cost for that region.
* Forbids insurers from raising an individual employer’s rates more than 10% beyond the average annual increase for other small employers.
* Limits to six months the waiting period before pre-existing medical conditions must be covered, and allows employees who change jobs to move from one insurance plan to another without a new waiting period.
