Employers face unusual market for health insurance; open enrollment period to begin

Sept. 30--Given UPMC's recent announcement Nascar driver Dale Earnhardt Jr. would be part of the Pittsburgh hospital system's new advertising campaign, it's fitting that the checkered flag drops on Oct. 1.

That date marks the beginning of an annual three-month sprint for business-based health insurance customers, known as the "open-enrollment" period. It's a period when typically more that two-thirds of commercial accounts are at least theoretically in play, since most businesses prefer benefit periods that start Jan. 1 and run through the end of the year.

In the Pittsburgh region, this year's open enrollment is anything but typical, for two big reasons.

The first is UPMC's decision to shred its full-access contract with Pittsburgh insurer Highmark Inc., meaning that come Jan. 1, Highmark's commercial customers (that is, non-Medicare and non-Medicaid customers) will have only partial access to UPMC's hospitals and clinics, with particularly limited access in Allegheny County.

That move would seem to portend a defection among current Highmark clients that wish to preserve their UPMC access, even if it costs them more money.

But the second, and less understood, factor is that the federal government is allowing some employers to keep their old plans, rather than forcing them to buy new ones compliant with all of the provisions of the Affordable Care Act. Small businesses -- those employing and enrolling no more than 50 people -- can continue to keep their "transitional" plans, which are generally cheaper than the fully ACA-compliant policies, through September 2017.

As the ACA was originally envisioned, all health plans sold in the small-group market already were supposed to have met certain minimum standards.

But that deadline was extended because of Healthcare.gov's disastrous roll-out. It was extended again in March, when the Obama administration announced that it would let people with non-compliant health plans hold on to them for three more years, as long as their states allowed that.

Pennsylvania allows it. In other words, for many small businesses, it might make financial sense to keep their "grand-mothered" Highmark insurance.

"If you're with Highmark and you're getting a low rate adjustment, you're kind of in a box," said Rick Galardini, CEO of JRG Advisors, a benefits broker in Pine.

Some groups -- particularly those hit hard by recent illnesses among members -- will benefit from shopping around. That's because the new ACA plans are priced on age, gender, smoking status and geography, but not illness history.

Some small groups are finding that the good premium deals signed a year or two ago are disappearing. "UPMC Health Plan really depressed their rates last year," Mr. Galardini said. "Renewal [quotes] are sliding in every day, and they need their money back."

For most small groups, including most UPMC Health Plan clients, it makes more sense to take advantage of the three-year delay and stay put.

Mr. Galardini said about 85 percent of his small-business clients will find it's a better deal to stay with a grandmothered plan. Shari Herrle, vice president and director of compliance at Pittsburgh'sHenderson Brothers insurance agency, agreed.

"There's no question that the vast majority, 80 to 90 percent, are finding that the grandmothered renewal is by far the best option for them," she said.

"We're not expecting a big shift," said Jim McTiernan, a benefits consultant at Pittsburgh-based Triad USA, a division of Arthur J. Gallagher & Co. All employers, big or small, are exploring their options, and "there will be more movement than normal, but not a very significant change."

An upside-down market

The upshot? The normal open-enrollment season dynamics have been turned on their heads -- smaller employers, who are often price shoppers and more prone to jumping insurers from year to year, are staying put. Larger "self-insured" employers, which are usually more resistant to changing insurance providers, may instead be looking for a better deal or a more expansive provider network.

If a company is "self-insured," that means it pays its own employee health care expenses. These kinds of companies -- whose employees make up about 60 percent of the employer-based health care market nationally -- aren't buying actual insurance; instead they paying health insurers for claims management and benefits administration services.

Even though large, self-insured employers can't be wooed with cut-rate health care premiums, there are still deals to be had, Ms. Herrle said.

Administration costs typically account for 10 percent to 20 percent of a large employer's total health care tab. If an insurer can cut expenses -- through multi-year, fixed rate deals on benefits services, or aggressive rates on stop-loss insurance (which is the insurance coverage that employers buy to guard against higher-than-expected medical claims) -- the employer can save money on the fringes.

"The competition of the market will naturally drive down the fixed costs," Ms. Herrle said.

While a large employer, especially one with employees scattered across the county, first wants to know about hospital access, it's not the only consideration. Some companies prefer the Blue Cross Blue Shield approach to covering claims (pay first, ask questions later) to the more aggressive claims-review practiced by for-profit insurers, Mr. Galardini said.

Beyond that, "What's the contracted payment for the medical services going to be?" Ms. Herrle said.

Some insurers have better contracts than others with area hospitals and providers. Historically, Highmark has had the best negotiated rates with Pittsburgh-area hospitals, meaning the employer pays lower medical bills.

That gap has been narrowing in recent years, Ms. Herrle said, and Highmark's advantage on hospital bills isn't what it used to be. Large employers that stuck with Highmark because they had lower claims costs may find Cigna, Aetna and UnitedHealth more competitive than they expect.

On the other hand, having access to the prestigious, but more expensive, East End UPMC hospitals will come at a price for the employers that want it.

"Be careful what you wish for," Ms. Herrle said.

Hidden attrition

When big companies change health insurers, it grabs attention, and sometimes -- in this region, anyway -- even headlines.

But much of the Highmark attrition won't come in the form of insurance accounts changing hands; instead it will come one covered life at a time, by way of large employers -- such as the city of Pittsburgh -- that now, or historically, offer two or more insurance options to their employees.

At those places, employees who selected a Highmark plan this year might select a different one for 2015, supposing the prices are comparable. The city in 2014 began offering HealthAmerica plans alongside Highmark plans. In 2014, according to Highmark, city employees stuck with Highmark 95 percent of the time.

But many may reconsider this year if their doctors or specialists are suddenly out of network.

Still, for all of the mud wrestling between the two Pittsburgh health care giants, Jan. 1 might not look much different that Dec. 31. All of the insurance and benefits experts interviewed for this story predicted that by the New Year, Highmark will have fewer clients and insured lives, but none thought it would be a terribly damaging number.

"We are starting to see some movement now," Ms. Herrle said, but, "I'm not saying it's a mass exodus in any way."

That's the good news for Highmark. The bad news? More of the same nail-biting is expected a year from now, and perhaps for the next several years -- while open enrollment is a three-month sprint, the battle for market control is a marathon.

"We're not seeing as much movement as we had perhaps thought there would be," said Barbara A. McGinley, senior vice president at HDH Group, a Downtown insurance brokerage. That's partly because the summer consent decree between Highmark and UPMC, while still confusing to brokers and patients, at minimum seems to guarantee Highmark customers some continuity of care, and "safety net" access to UPMC's network.

"The consent decree has given our [Highmark] members and clients a comfort level" for Jan. 1, Ms. McGinley said. Once the safety-net provisions run out and Highmark customers get a year-long taste of life without UPMC's Allegheny County hospitals, Jan. 1, 2016, "will be just as interesting" for the insurer.

Bill Toland: btoland@post-gazette.com or 412-263-2625.

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