The idea behind the Missouri Consolidated Health Care Plan was straightforward: Put all state employees into one block of business and require health insurers to bid on the whole bunch. Few commercial insurers could afford to pass up such a tempting book of business.
Premiums would be competitive and low. Every employee would be eligible for coverage and the whole group would be community-rated.
While they were at it, the authors of the state plan made provision to add local governments to the pot. Any of the 4,900 local jurisdictions in Missouri -- school districts, counties, levee districts, fire districts -- could enroll their employees at the same premiums.
The idea worked beautifully -- for a while. Now, with lawsuits flying and insurers threatening to pull out, the effort to extend affordable health insurance coverage to more and more Missourians could shipwreck.
The problems in Missouri illustrate how even the most innovative of state measures for addressing the uninsurance crisis can founder on the contradictions built into how health insurance is bought and regulated. The result could be the undoing of the health plan that, better than any other, brought managed care to Missouri.
In 1994, when the Consolidated plan started, insurers fell over themselves to quote attractive rates, as they did to private employers they were trying to sign up in advance of national health reform. The premiums were so attractive that more than 420 governments joined, of which 30% were not previously offering health insurance.
And the program virtually guaranteed stable, low premiums. The state wrote up a one-year contract for insurers with four one-year renewals under which premiums could increase only as much as the medical inflation index.
Now the bubble has burst. Pinned between a surge in medical-loss ratios and an inflexible premium structure, insurers are hemorrhaging money. They want premiums boosted, and if Consolidated won't do it, maybe a circuit court judge will.
RightChoice Managed Care, the for-profit managed-care subsidiary of Blue Cross and Blue Shield of Missouri, filed suit against Consolidated Aug. 28. The lawsuit alleges that Consolidated has damaged RightChoice by not following its own procedures for adjusting premiums, granting contracts and admitting local governments. RightChoice is asking for $18 million to make good its losses in plan years 1997 and 1998, plus an undetermined amount for future years.
Consolidated covers about 135,000 state employees, retirees and dependents. About 26,000 of those are enrolled in two RightChoice insurance products, BlueChoice HMO and HealthNet Blue.
"They didn't implement the contract consistently," said John O'Rourke, chief executive officer of RightChoice and Blue Cross and Blue Shield of Missouri. "They were supposed to give us a rate increase, and if we didn't come to agreement, they were supposed to take it out to bid by other vendors."
Instead, he said, Consolidated harmed RightChoice by giving preferential treatment to other insurers. RightChoice alleges that Humana, Principal Health Care and United HealthCare Corp. were allowed to reduce their losses or bail out of the plan, leaving RightChoice to service all the higher-risk groups that remained.
That's very nice, but "a deal's a deal," responds the Consolidated plan's board of trustees. They sued RightChoice right back, alleging that the insurer has threatened to quit participating in the plan, leaving all the enrollees in the lurch.
"They signed a contract with us and we are suing them to make sure they honor the respective terms of that particular contract," said Ron Meyer, executive director of Consolidated.
A Cole County judge has asked both parties to be prepared to start a trial March 30.
RightChoice apparently has been losing money on the contract all along, although company officials decline to say how great those losses have been.
This year Consolidated will grant RightChoice a 6.7% premium increase. RightChoice requested 60%.
Meyer said the "crux of the issue" is that in January 1996 RightChoice reduced its rate by $38 per employee per month. "I'm assuming it was to obtain market share. That put them as our low-cost plan," he said. The monthly premium was $122.50 in the St. Louis area.
The way the state employees plan works, the state will pay the full premium for the lowest-cost plan in the area. In effect, that plan becomes the favored choice of all cost-conscious employees.
Three and four years ago, insurers across the state submitted extraordinarily low bids in a contest to win market share in advance of healthcare reform. In many cases they knew they would lose money, but getting a piece of the state contract would give them an opportunity to set up regional provider networks that they could then sell to other, more profitable employer groups.
The strategy backfired. A bloodbath ensued. United HealthCare of the Midwest, for instance, Missouri's largest HMO, lost $30.8 million in 1996. Principal Health Care of Kansas City lost $12.4 million.
This year insurers have boosted their rates in the private market and dropped undesirable groups.
Two other organizations, HealthLink and Continental National Assurance Co., have also filed suit against Consolidated. HealthLink is a Blue Cross PPO that's a contractor to Consolidated; CNA bears the risk for renting that PPO network.
RightChoice also accused the state plan of disregarding the Sunshine Act by holding directors meetings behind closed doors. (Consolidated has since conceded that point and says it will abide by the Sunshine Law.) And RightChoice accuses the state of refusing to release documents and marketing strategies.
"We asked for their marketing plan for public entities, which we're required to service. That doesn't seem unreasonable to us," said Gretchen Garrison, a RightChoice attorney. In other words, the contracting insurance companies want to know what the state is telling local governments and their workers.
"They've claimed proprietary interest in this," Garrison said, "because they claim they compete with us."
Indeed they do. In one of the dispute's bizarre twists, insurers who participate in the Consolidated plan find their rates are effectively capped when pitching a bid to local governments. The only way an insurer can capture that business is if the particular group has an extremely good experience rating -- better than the community rating that Consolidated uses. (Community rating puts everybody in a geographic area -- sick, well, old, young, rich, poor -- in the same actuarial pot.) Then the insurer can undercut Consolidated's premium. Otherwise, Consolidated takes the contract, and the same insurer (e.g. RightChoice) may be forced to serve that employee group through the state plan.
One person who formerly worked for a hospital in the middle of the state remembers that the hospital and its physicians declined to bid on the Consolidated business. "We didn't see how the insurance companies could make any money at those (provider payment) rates. We couldn't make any money on the rates they were offering, so we didn't really want to participate." The former employee asked not to be identified.
"From a provider's standpoint," she added, "you hope (public employees) go into the other plans, to bankrupt them instead of you. We'd be losing money every time we treated somebody."
Still, she said, "Consolidated brought managed care to Missouri." Before, there was hardly any managed care at all outside St. Louis and Kansas City. To prepare a bid on the Consolidated contract, managed-care players had to assemble statewide networks and introduce managed care to doctors and hospitals who'd never encountered it.
And the Consolidated plan did what health insurance reform is supposed to do. It made insurance available to many small groups who could not get competitive rates, especially if they had one employee with a chronic condition. Now, every public employee in the state is potentially eligible for insurance coverage, at community-rated premiums.
For RightChoice the last straw was the city of St. Louis' bid last summer. United HealthCare, St. Louis' insurance carrier, dumped the city because it was losing too much money. The city solicited new bids.
One of those new bidders was RightChoice, which says it bid "at prices substantially higher than the 1996 (Consolidated) plan year agreement prices." All the new bids came in too high for the city's liking, so it joined Consolidated. It started open enrollment on July 1, 1997.
Of the 11 insurance products contracted by Consolidated in the St. Louis region, the city picked three to offer its employees. RightChoice, to its horror, was among that unlucky trio.
Unlucky because city employees are notoriously high utilizers. Their medical-loss ratios run well above the norm, yet under Consolidated's practices that experience is of no account when setting premiums.
On that point, again, RightChoice takes issue with Consolidated's interpretation. It says the state law that created Consolidated in 1992 requires the state plan to conduct an actuarial study of the local group's experience and the effect it will have on the plan. Then the insurer is supposed to submit a request for a price increase, "based on data, based on the increase in risk, and Missouri Consolidated is supposed to negotiate with us," Garrison argued. "In fact they do not do that. They let everyone in with no analysis whatsoever."
Wrong again, retorts Meyer: The statute doesn't say Consolidated has to do an actuarial analysis; it says it can if it wants to. And it doesn't.
The actual legislative language says the board can accept public entities "based upon an actuarial analysis or any other determination that the board deems appropriate."
In its lawsuit RightChoice makes one assertion that could come back to haunt Consolidated. If community rating remains in effect, "contractors will refuse to submit proposals to (Consolidated) for future plan years because contractors cannot reasonably anticipate the costs of future risks."