Small Business Health Insurance in Massachusetts
Email This Post
Print This Post
About a year ago, I wrote a post about the premiums paid by small and large businesses in Massachusetts. I stated that - ON AVERAGE - small businesses who bought health insurance from Harvard Pilgrim paid 10 percent less than large businesses. I did the analysis - and the blog -because I knew that many of my friends and colleagues in the small business community seemed to be having a much tougher time paying for health insurance than the folks I knew at larger businesses. I was concerned that small businesses were over-paying for services, and subsidizing larger businesses. That did not appear to be the case - at least for our customers.
As I listen to the discussion taking place around small business health insurance costs in MA for 2009, I’ve heard similar concerns about cross-subsidies and rising prices - so I went back and checked out the rates for small and large businesses in MA for 2009. First of all, the differential that existed in 2008 between small group premiums and large group premiums - on average - is still there. Small groups purchasing from Harvard Pilgrim are paying about 8 percent less than larger groups.
Second, the year over year increases, while a little hard to measure (people change, companies change, etc.), aren’t that much different, either. On average, small businesses that do business with us received premium increases of about 10 percent, and most of them re-structured their plan designs, reducing the average year over year increase to more like 5-6%. Larger groups saw a year over year increase of about 8 percent - two points lower than small groups - but that’s due primarily to the MA health care reform law. Under health care reform, the state merged the individual market with the small group market, and that did raise - as we said it would - all prices in the small group market - by about 2 percent. This was due to the fact that individuals in the individual market brought much higher claims costs on a per person basis into the small group market, thereby raising the overall health care costs of everyone in the merged market - except individuals. Merging the individual and small group markets reduced individual premiums by about 25 percent.
Third, the so-called “margin” on small group and larger group business - another point of significant contention - is not much different. When we add up how many cents of every premium dollar we collect gets spent on medical costs in the individual and small group market - the so-called “merged market” in Massachusetts - it’s about 88 cents. Add 11 cents for administration, and that leaves us with a 1 percent margin. For larger businesses, the numbers are virtually the same. There is no cross-subsidy being paid by small groups to fund large groups at Harvard Pilgrim.
That doesn’t mean small groups aren’t feeling the pain of rising health care premiums and costs. An average increase of 10 percent is just an average. Some pay less - but others pay more. And some small businesses are adding comprehensive drug coverage - a new state requirement - to their plan designs for the first time. This adds 20% to the cost of coverage all by itself.
Health care costs are too high, and there is too little information publicly available to inform a public debate about what to do about it. On this, we agree - and have said so for years. But the notion that big companies are pulling something over on small ones isn’t supported by the facts - at least for the companies that do business with Harvard Pilgrim.
Charlie,
There are many, many problems to solve in the cost equation, but a lack of publicly available information is not one of them. On the contrary, there is a wealth of public information about cost variance among and inside hospitals and other providers. What is available is frankly shocking and indefensible.
The reality is that there is a lack of willingness, and occasionally courage, among providers, payers and employers to demand accountability and implement change based on the information that is available.
Charlie -
Why do small businesses pay lower premiums on average to HPHC than large businesses? Do small businesses purchase less rich benefit plans? Or do they have younger employees? Or does your analysis adjust for that kind of thing?
Katharine
Hal - Why am I not suprised that you think there’s plenty of data and not enough accountability(!). I think I mostly agree with you - but we’ll all be better off when the data has a more public seal of approval on it.
Katharine - On average, small businesses buy less rich plans - but remember, the small group market is more heavily regulated - so the distribution of product options available to the rest of the market is a lot larger than the options available in small group. Larger groups have bigger plan design and price differentials between the top and the bottom ends of the market.
Still, the MLR’s, on average, are pretty much the same for small group and non-small group - so the big driver of premiums is the same for both - medical expenses. The one caveat is the blending of individual and small group rates in MA - which did raise small group rates overall, and reduce individual rates.
Thanks for looking into this Charlie, but I assume you won’t mind if we continue to push for more transparency and study on this issue by the state. An annual study showing rates for various size groups on an actuarial equivalent, or apples to apples plan basis can either show whether there is a fairness problem, or it can help prevent one. We have been told for years that private payers are subsidizing Medicare/Medicaid, and we have been told the importance of cities and towns joining the GIC to save taxpayers hundreds of millions of dollars per year. If both of these statements are true, is it such a leap for smaller purchasers to believe that they are cross subsidizing someone else? If they aren’t great! But in a state of mandated coverage, let’s make absolute sure of it. I would also like to see you Charlie and your competitors report on your self-insured clients, which I believe now represent approximately 55% of the marketplace. What percentage of your self-insureds cover all of the MA state mandates? Can we see an aggregated reporting of compliance by each and every mandate? In addition, what are the brokers fees that are paid on a typical $20,000 family policy? Are they on a percentage (ie 5%) or flat fee basis? If you don’t use a broker, where does that unpaid commission go? This information would be key to our efforts to make sure small businesses are not disadvantaged in the competitive marketplace.
I agree with you on the merger of non-group and small group. We opposed this when it was going through. On the subject of prescription drug coverage Charlie, we have filed legislation to amend MCC to not require prescription drugs. In a period of $4 generics paid for by cash, mandated coverage with co-pays higher than out of pocket prices is simply crazy. The drug companies and PBM’s must love it, but it is one of the most anti-consumer laws I have ever seen.
Thanks Charlie,
Jon Hurst
Charlie,
I am at least glad that you are not surprised.
The data to which I refer has the seal of approval of the United States government, so I am not quite sure what else is superior.
Hal - Say more. Please.
Jon - I hope you know that I welcome the discussion. For the record - you - we - everyone who buys private insurance is definitely subsidizing Medicare and Medicaid. The only debate is over how big the size of the subsidy is. I think it’s 40%, +/-, while others put it in the 30% range. Either way, it’s huge. Medicare and Medicaid argue that the private plans are over-paying for services. Maybe. But studies have shown that 75-80% of the hospitals in the U.S. would be technically bankrupt if they had to live on Medicare payments as their only source of revenue, so I don’t think this argument holds much water. They under-pay - we subsidize.
The GIC is a little different. Remember, many of the communities that have joined the GIC are small ones (less than 500 lives). They really aren’t big enough to carry the cost / insurance risk of a few very sick people. In the private market, small groups are bundled into a single pool under state law (hundreds of thousands of lives) and rated as a big group. Communities that join the GIC are - in effect - doing what small employers in MA already do - joining a much bigger risk pool to share their risk with others.
In addition, the GIC uses an independent board to manage its plan designs and its offerings. Cities and towns are not permitted to use an independent board, and have to negotiate any plan design change with every union individually. If one says no - then nothing happens. That’s a big difference all by itself.
Your calculation on the share of self-insured business as a percent of the total private market is about right - roughly half. And they do benefit by being able to absorb their own medical expense risk. They don’t have to comply with state mandated benefits, although most do, they have huge plan design flexibility, and if they make investments in wellness, they get the benefit (again - because they own their own medical expense costs).
Broker commissions are usually some combo of lives covered and a percent of premium - but they’re all part of the 10-11% of premium spent on health plan administration. The rest - 90 cents of each dollar - is spent on health care services.
And I’m with you on the $4 generics and the MCC.
Hi Charlie,
One follow up question to you on the Medicare cross-subsidy issue. You put the figure at about 40%. Does this mean that the typical insurer reimbursement to providers would be about 140% of Medicare rates? If the state were to put limits on the reimbursement rates to providers based upon current Medicare rates, what would be the right cap to lock in essentially the average current reimbursement? It seems to me that such an effort would go a long way to prevent “handshakes.”
Jon - There’s a lot of conversation about that issue going on right now. I think there are two issues. The first is - what’s the right number? 140? 130? 125? 110? The second is - does it apply to everyone? Right now, some providers get less than 140% - but more than Medicare - while others get a lot more than 140%. Should that differential be equalized? Some providers, and some public officials, think the answer to that question is yes.
Charlie - Specific to the Mass GIC let’s look at why they save some cities and towns money. As of July 1, 2009 the total premium cost for the GIC HPHC Independence Plan is $524.56 per month for an Individual and $1,269.53 per month for a family policy. Tufts Navigator in the GIC is a bit cheaper at $517.36 per month for an Individual and $1,246.59 for a Family. These are two pretty basic PPO products. Now, if you were a town or city still living in fantasy land offering BCBS indemnity plans… well, then you would see a TON of savings rolling into the GIC. If you were a smaller self insured city or town losing on your book of business it might also save money to join the GIC and fix your healthcare costs. As a small business with less than 50 employees, I know our group’s healthcare costs run about $520 per month for an Individual and $1,450 per month for a Family (we also have a two person plan at $1,150 per month which drives the family plan premiums higher). So in summary as a small group we pay almost the same amount as the GIC for an Individual policy and a little bit more for a Family policy (granted copays and deductibles can vary). I think that pretty much proves your point on small groups and large group rates. The GIC simply moves towns and cities from very high cost BCBS indemnity products and fixes their costs in HMO and PPO products. I think this is why BCBS has not offered a GIC product in the past… it would cannabilize their own highly profitable dealings with the individual towns and municipalities.