CaliforniaChoice Founders Receive 2002 Innovators Award

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Hurricane Lili, which wreaked havoc on the plans of thousands and thousands of people, also doused what was to have been a moment of triumph for John M. Word III and Rusty Brown. The two men were to have received the Second Annual Innovators Award at the annual meeting of the Health Insurance Association of America in New Orleans last month.

In the event, neither man could fly due to the storm, and the meeting was ultimately cancelled.

The Innovators Award, established in 2001 by HIAA, National Underwriter and Witt-Kiefer, recognizes the transforming effect of visionary leadership in the health insurance industry.

Word and Brown were this years award recipients due to their founding of CaliforniaChoice, a for-profit health insurance purchasing program that gives workers at small employers the freedom to choose from a menu of health plan choices.

The program also offers a variety of other built-in and optional benefits, including life insurance, dental insurance, chiropractic coverage and benefits administration services.

CaliforniaChoice handles all enrollment and administration for each employer group, and it presents each employer with one itemized monthly bill.

Some health insurers and health maintenance organizations might prefer to do business the traditional way, by serving all or none of a small groups members.

But, in the long run, the program “satisfies the needs of all the stakeholders,” says Word, managing partner at CaliforniaChoice. “It just makes sense.”

The program helps workers by giving them choices, and it helps small employers and their brokers by improving employee morale, Word says.

He thinks the program even helps the carriers, in part by cutting the hidden costs resulting from employer health plan changes.

When changes force workers to switch doctors, the new doctors run their own diagnostic tests, and that drives up claims costs, Word says.

Word and his partner, Rusty Brown, who is president of CaliforniaChoice, teamed up in 1984 to start Word and Brown Insurance Administrators Inc., Orange, Calif., a general agency that distributes health insurance for small groups through insurance agents and brokers.

Over the years, Word and Brown often heard business owners ask for help with giving employees access to a menu of health plans, rather than forcing all employees to a sign up for a single plan.

Word and Brown had to tell their clients that underwriting, pricing and administrative concerns made offering employees a health plan menu, or giving employees the cash to buy their own individual coverage, impractical.

But in 1993, California lawmakers passed A.B. 1672. The bill reshaped the rating rules for employers with three to 50 employees, by limiting carriers in the state to charging 10% extra for employers with high claims rates and giving 10% discounts for employers with low claims rates.

Word and Brown thought the legislation could protect the carriers participating in a health plan menu program from adverse selection.

But recruiting carriers “was one of the most difficult things we ever did,” Word says. “Up until then, it had been a winner-take-all market.”

Word and Brown were finally able to sign up carriers and start CaliforniaChoice, a Word and Brown Insurance subsidiary, in 1996. The program now provides coverage for 12,000 small employers and 150,000 workers and dependents.

CaliforniaChoice is looking into the possibility of marketing a single-carrier, multi-plan version of the program outside California for employers with more than 50 employees, Word says.


Reproduced from National Underwriter Life & Health/Financial Services Edition, November 4, 2002. Copyright 2002 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.