In the current environment, selling group health insurance sounds about as painful as undergoing root canal surgery without anesthesia.
Rates have been going in only one directionup, and up, and up some more.
Nonetheless, many longtime group health producers say they are sticking with the product.
David Fear, an agent with California Insurance Marketing Services, Sacramento, Calif., says he continues to see accelerating rate increases.
“Wed moved a lot of people to HMOs because their rates were lower, and now theyre up,” Fear says. “Its pretty consistent across the board. In the past the HMO rates werent rising as fast.”
But Fear has no intention of bailing out of selling health insurance.
“My job is to provide my customers with options,” he says. “Its an honorable profession. Ive been in this business from 1979 and invested time and effort.”
Some other producers report seeing signs that the rate increases in their markets are moderating.
Although rates in Ohio have not yet stabilized, they are increasing at a slower rate than in the recent past, says Charlie Collins, a partner at Collins Financial Services, Columbus, Ohio.
“Everyones getting increases, but theyre about 25% less than what they were last year,” Collins says.
In Virginia, rates went up an average of about 18% to 25% each year in 2000, 2001 and 2002, according to Susan Rash, a vice president at BB&T Benefit Consultants, Richmond, Va.
This year, the average rate increase is somewhat smaller, Rash says.
The producers observations support a prediction by Loren Suter, deputy executive officer at the California Public Employees Retirement System, that 2004 rate increases will be smaller than 2003 increases, and 2005 increases will be noticeably better.
Past rate increases may have lowered employers resistance to future increases.
The National Association of Health Underwriters, Arlington, Va., recently asked 15,000 brokers how much of a rate increase typical employers would tolerate before switching plans.
Brokers told NAHU that employers might accept increases as high as 15% before taking their business elsewhere.
Brokers also have grown more tolerant of rate hikes.
“Weve gotten so immune to the increases, were happy when we see a 10% increase,” Rash says. “In any other business that would be insane.”
Meanwhile, although health finance experts worry that escalating insurance prices will force employers to drop coverage, demand continues to be reasonably strong in many communities.
In Ohio, even though employers are looking for ways to cut costs, no employer that Collins works with has dropped coverage.
“Weve seen tweaking on base deductibles and a lighter benefit on prescription drug cards, but we havent seen anyone not offer coverage,” Collins says.
On the West Coast, John Nelson, a Westlake Village, Calif., broker, estimates that more than one-third of the health coverage his company writes each month goes to employers that are first-time group health buyers.
“I think it has a lot to do with the job market,” Nelson says. “Its still pretty hot out here. Employers are interested in retaining their employees and need to maintain a level of benefits for them.”
The producers interviewed say they understand why carriers are raising rates.
Higher drug costs, advances in technology, the aging of the American population and increases in the number of visits to physicians all play a role in increasing the cost of health coverage, the producers say.
“The mentality is, Im paying so much, Im going to use it,” Rash says.
In some markets, one or two carriers are so dominant that they have no need to wrestle for business.
In other markets, the carriers still face real competition.
HMO rates may be soaring in California, but the group health market there is still very competitive, producers say.
“We have a number of carriers vying for business,” says Nelson.
Similarly, in Virginia, “we still have a very viable market,” Rash says. “Weve got Anthem, United HealthCare, Aetna, Cigna.”
Because the competition is so fierce, and brokers supply about 95% of the carriers new business, commissions have held steady, Rash reports.
She sees commissions for larger groups averaging about 2% to 3%.
“Most carriers have come up with a fair compensation for us,” Rash says. “We are a very strong distribution source for them.”
Of course, even if employers and their group health agents are getting used to double-digit rate increases, coming up with plans that employers can actually afford takes some creativity.
Some of the brokers say they already are recommending the new defined contribution or “consumer-driven” plans, which usually combine employer-paid, high-deductible health insurance with employer-funded personal health accounts. Other brokers say widespread use of defined contribution plans is still two or three years away. (See related story on page 37.)
Russ Childers, an insurance broker with Russ Childers Insurance, Americus, Ga., promotes an older form of defined contribution health coverage: He suggests small employers have employees buy individual insurance rather than sponsor group health insurance.
Because carriers must sell coverage to small groups on a guaranteed-issue basis, but Georgia allows medical underwriting for individual coverage, individual coverage tends to be less expensive, Childers says.
Employers that have been sponsoring plans could simply stop, then use the cash no longer spent on premiums to give employees raises, he says.
But Childers and other producers say the most popular response to high health insurance rates is to tinker with traditional plan designs.
When meeting with employers about a rate hike, Childers arms himself with industry articles on rising medical costs and doctors charges. He then suggests the employer offset the higher premiums by switching to a plan with higher deductibles.
In BB&Ts area, “most employers are attacking the problem [of increases] by shopping the market, trying to switch to a more competitive carrier and altering benefits,” Rash says. “Its common to increase prescription drug copayments.”
BB&T is trying to help by offering plans that give employees some choices about premiums and deductibles.
Preliminary results of the NAHU broker survey reveal that employers are still concerned about plan flexibility.
Preferred provider organization plans are more popular than HMOs, and the most common changes are increases in deductibles and copayments, not shifts to smaller networks, NAHU says.
Brokers told NAHU that 90% of employers would be willing to pay 5% to 10% more to switch to a plan that offered “five-star service,” all other things being equal.
Reproduced from National Underwriter Life & Health/Financial Services Edition, June 30, 2003. Copyright 2003 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.