Empire Blue Cross Blue Shield, the largest health insurer in the region, announced to health insurance brokers on Friday that it will eliminate most of its small group plans in the New York market effective April 1, 2012, and is slashing its financial incentives for brokers to sell those products – a move one industry insider has said would be “catastrophic” for the insurance marketplace.
In a statement, Empire said it will reduce the number of plans offered to small groups and will offer fewer PPO, HMO and EPO plans, but claimed it has no intention of withdrawing from the market – a point with which brokers disagree.
“The products that they’re withdrawing from the markets are the ones that were competitive. The ones that they’re leaving in the market are the ones that are less cost competitive. Effectively, they’re pulling out of the small-group marketplace,” explained Craig I. Hasday, the legislative chair of the New York State Association of Health Underwriters, the professional trade association representing health insurance brokers and employee benefits consultants, in a phone interview on Friday morning.
Mr. Hasday also claimed that Empire will “virtually eliminate” compensation to brokers, switching from a flat 4-percent commission to a $5 per contract per month basis. “That’s a dramatic cut,” he said.
Empire’s statement says the insurer is sensitive to the economic challenges facing small businesses and its goal is to offer affordable health insurance plans to New York’s small businesses, but that it has had financial losses in the small group business that it called unsustainable.
“Several factors are driving our need to increase rates: health provider charges have gone up; fewer small group employers and employees are purchasing coverage so those remaining face higher costs; we are experiencing the affects of adverse selection in our risk pool; and, there have been reductions in state subsidies that previously served to lower cost and premiums for certain mandated products,” Empire’s statement reads.
“It’s incredibly destabilizing and it will drive the cost of insurance up, because without competition, obviously, the incentive for insurance companies to keep rates down is significantly depressed, and it will also limit choice for the consumer,” Mr. Hasday said.
Officers of New York State Association of Health Underwriters sent a letter – of which Mr. Hasday was one of the signers – dated November 2, addressed to the superintendent of the State Department of Financial Services, stating concerns that a major carrier, which it did not mention by name, is withdrawing from the small group market because of rate request denials/reductions in the last five consecutive quarters. Mr. Hasday later confirmed that the letter referred to Empire.
“The major carrier’s pending withdrawal from the small group market is nothing short of catastrophic to small employers in the state,” it says. “Multiple small employers with literally tens of thousands of employees are going to be left without coverage, as there will be only two to three other carriers left in which brokers may try to place coverage. If the other carriers follow suit, the availability of coverage will dry up entirely.”
The letter points to two changes in state law from 2009 that the State Association of Health Underwriters says it “vociferously opposed.” Those were requiring insurance companies to get approval from the State Insurance Department before changing any rates. The other was the requirement that an insurance company could only spend a certain percentage of premiums for non-claim costs.
“We argued that prior approval would become a politicized process, that the rates would amount to price control, and the rates that would be approved would be substantially below the rates ultimately required by the insurance companies to do business,” Mr. Hasday said.
One South Fork broker said the following products are said to be withdrawn: Empire EPO Stepped, Empire EPO Essential Options 1 through 9, Empire Point of Service, (POS), Empire PPO Plus, Empire Total Blue PPO with Health Savings Account (HSA), Empire Prism EPO and Value EPO.
Products said to remain in the small group market include HMO/DHMO Option 12, PPO Option 1, PPO Option 2, Empire EPO Essential Option 10 and Healthy New York. As of January 1, 2012, however, only a high deductible Healthy New York plan is said to be available for new small group clients.
State Assemblyman Fred W. Thiele Jr. said on Friday that Empire’s announcement came as a surprise and is bad news.
“I think that the proposal is something that is very bad for the people of the State of New York and particularly bad for small businesses,” Mr. Thiele said. “It’s certainly something that we want to see fully investigated. And something that I think we need to fight.”
Drew Biondo, a spokesman for State Senator Kenneth P. LaValle, said on Monday that the senator has asked Senate staff to “find out exactly what’s going on, why they’re doing it and what it’s about so that the senator can take any appropriate action that can help the business owners and individuals who are affected. We’re hearing different stories, so that’s why we’re going directly to the horse’s mouth.”
Paul J. Connor III, president and CEO of Eastern Long Island Hospital in Greenport, and spokesman for the East End Health Alliance, which includes the region’s three hospitals, said in a statement Friday that the alliance has not received notification from Empire of any impending changes to the health plans offered locally.
“The lack of advance notice leads us to believe the contemplated changes to do not affect the alliance contract with Empire,” Mr. Connor is quoted as saying. “We are hopeful Empire’s decision will not limit access to health care on the East End.”