Health Underwriters Opposes N.J. Bill That Seeks Discount From Carriers
The New Jersey Assembly on June 21 approved amendments to a bill opposed by the New Jersey Association of Health Underwriters.
If it becomes law, A-1315, sponsored by Connie Myers, R-23, will allow small businesses (with between two and 50 employees) to pool their resources in order to buy health insurance plans in volume for their employees at a discount rate.
The legislation would enable such an alliance to negotiate directly with a carrier, effectively eliminating the role of the broker.
Myers sponsored the bill for small-business owners who say they need to be able to offer health benefits to compete with large corporations for talented employees, but are discouraged by prohibitive costs.
The response of Charles Gartlan, president-elect of NJAHU, is that such associations are well-intentioned but shortsighted. They have failed in the past and are therefore likely to fail in the future, he says. He argues that a carrier wanting to increase its number of participants might initially find such an alliance alluring, but eventually realize the same losses that it experienced insuring the small employers on its own.
How can a carrier provide a discount when it must pay the same number and type of claims whether the small businesses buying its plans have pooled their resources or purchased directly, Gartlan says.
“Who is making so much money today that they can find a cheaper way to market, administer and process claims?” Gartlan says. “Are you going to eliminate brokers? Plenty (of carriers) have done that and have gone back to using brokers. Theres no magic; weve got to collect premiums and pay claims. The brokers are being paid less, the carriers have laid off lots of people, services have gone downhill, where is the magic here?
“A larger group will only get a better rate in the long run if (the plan members) are healthier people, the reason being that the cost of health insurance is claims plus a rather small administrative overhead,” Gartlan says. “If it were claims plus a large overhead, more companies would be entering New Jersey instead of leaving New Jersey.”
Trying to protect carriers from making a potentially expensive mistake is a moot point, suggests health care lobbyist Brian Markowitz, because the bill does not mandate that a carrier sell to an alliance. He adds that if a carrier does sell to an alliance, then decides it is not profitable, it can always opt out.
Its up to a carrier to find efficiencies that would enable it to offer a discount, Markowitz says. “If they cant, theres nothing to force them to do so.”
The vice president of the New Jersey Business and Industry Association, Trenton, says the idea for the legislation came from an insurance broker constituent of Myers.
“Were shocked that the underwriting community is opposed to this,” Markowitz says. “We think brokers can use this as a tool.”
Markowitz likens the legislation to the way AAA works: “People who are members (of AAAs automotive service plan) are able to go to different places and get a discount. I think this is something that makes a lot of sense and hopefully can provide savings for small employers out there.”
In its original form, the bill allowed an alliance favorable underwriting status, thereby creating a means for a discount, and for alliances to self-insure. The amendments approved by the Assembly eliminated those two highly controversial features. But in spite of the changes, an association would still enjoy favorable underwriting conditions, Gartlan says.
“The problem with this bill is that it will provide a carrier with a preferential way to rate the participants,” Gartlan says. “If an association, the very nature of which is made up of preferred members, e.g. young, male singles, working in a (non-life-threatening) occupation, presents itself to a carrier, that association could well obtain a higher discount than an association whose members are predominantly older females.
“Right now, a 64-year-old female cannot be charged more than twice what a 22-year-old male is charged. Once you let a carrier squeeze out on the low side, youve undermined the foundation of the rating structure,” Gartlan says.
Myers was not available for comment.
Jacquelyn Coy, New Jerseys legislative chairperson for the National Association of Insurance and Financial Advisors, whos lobbying against A-1315, feels the bill is less controversial now that its been amended, but it presents one basic problem for alliances: Its a discount program headed by a board of directors that could swallow up more in fees than the discount it seeks to negotiate.
“Most probably its going to come out a wash,” Coy says. “I dont see any great benefit to the employer and theres no place in this for an insurance agent or broker to advise.”
Reproduced from National Underwriter Life & Health/Financial Services Edition, July 6, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.