Quick, where's the exit?" could be the new motto for managed-care plans in Washington state, as several big players late last year rushed to drop out of the individual policyholder market and a state-subsidized program for the working poor.
Now health plans are scurrying to find a long-term solution before this year's state legislative session ends April 30.
In both the individual and family markets, health plans say adverse selection and rates that scare away healthy enrollees make it impossible for them to do business profitably.
State insurance officials say premiums more than doubled last year for about 16,000 unsubsidized enrollees in the state's Basic Health Plan, which provides partially subsidized coverage for about 127,000 other low-income working people.
The subsidized enrollment is kept afloat by state funding, but the program reportedly faces a $75 million deficit.
Health plans worry that residents who are forced out of the Basic Health Plan and related programs will flood the individual market, exacerbating the crisis.
And then there were two. The biggest blow came late last November, when Premera Blue Cross-which commands about 60% of the individual market in the state-said it would immediately stop selling individual coverage to new enrollees. Its 125,000 enrollees who already buy health coverage directly rather than through an employer were not affected. The decision left just two significant players, Group Health Cooperative of Puget Sound and Regence Blue Shield, both of Seattle, in the increasingly shaky individual market.
"We're not in denial any more," says Regence spokesman Chris Bruzzo. "Everyone agrees there is a problem and we need to fix it."
Regence and Group Health, along with Kitsap Physicians Service, Bremerton, Wash., initially won temporary exemptions in December 1998 from the state insurance commissioner, allowing them to refrain from offering another managed-care product designed for individuals, the so-called Model Plan. Group Health also suspended new enrollment in a similar plan with a $250 deductible. Normally, all health plans that sell individual commercial policies in the state are required to offer the Model Plan-which has benefits identical to those of the Basic Health Plan-to potential enrollees who are not covered through their employers. But Regence and its two counterparts feared that an exodus from the unsubsidized version of the basic plan would flood the Model Plan with high-risk, high-cost enrollees.
Group Health officials bluntly admitted that their plan "doesn't have the financial ability to absorb the (resulting) enrollment and risk."
Their exemptions were originally set to expire March 1, but Insurance Commissioner Deborah Senn extended the deadline to April 30, the final day of this year's legislative session.
In November 1998, the insurance commissioner blasted Premera's exit as "an arrogant and outrageous attempt to create a false crisis in order to win concessions from the state."
Senn, who often tangles with the managed-care industry, says mismanagement at Premera, rather than structural problems in the individual-coverage market, is at the root of the Blues plan's dilemma.
Adds Jim Stevenson, a spokesman for the insurance department, "There's obviously going to have to be some legislative solution." As a temporary measure to prevent further erosion in the individual market, the commissioner granted the exemptions to Regence, Group Health and Kitsap, he says.
Officials at Mountlake Terrace, Wash.-based Premera noted that the health plan lost more than $70 million on individual policies between early 1994, when state-mandated reforms made it far easier for enrollees to join and exit health plans, and 1997, the last year for which it announced results.
"We have remained committed to the individual market through extremely difficult times, while other carriers have either withdrawn or significantly scaled back their participation," Trae Andersen, Premera's senior vice president in charge of the individual-enrollee market, said last November. And because of the market's continuing instability, "(1998) losses continue to mount," he says.
However, state law precludes Premera from pulling the plug on its current individual policyholders. Even so, premium increases have cut its individual enrollment by 30%, to 125,000 from 181,000, in less than two years.
Premera has about 1 million enrollees overall in the Pacific Northwest and Alaska. It was formed by the June 1998 merger of Blue Cross of Washington and Alaska, and Medical Service Corporation of Eastern Washington.
Enrollees drop in, drop out. From 1994 through 1997, Washington state's six largest health plans lost more than $106 million in the individual-coverage market. The plans say that 1994 reforms intended to improve access to health coverage have created a monster, allowing individuals to sign up for coverage when they need treatment for a medical condition and then drop it as soon as the treatment is completed.
Because state law requires plans to begin covering pre-existing conditions within 90 days, pregnant women frequently use plans in the individual market to pay for their pregnancies and birth-related medical costs, and then drop out, the industry claims.
"That's like waiting to see flames engulfing the house before you buy fire insurance," Andersen noted. The plans say the rapid enrollment and disenrollment process drives up the rates for healthy enrollees, effectively forcing them out of the market, and exacerbates adverse selection.
Adverse selection occurs when a larger than usual number of unhealthy or chronically ill enrollees join a health plan, driving premiums up and, consequently, prompting healthier enrollees to choose other, less-costly health plans.
Regence sees its temporary exemption from the state as a stop-gap measure that allows it to stay in the individual market while a longer-term legislative solution is found. "For the market to stabilize, it's going to require a legislative fix," Bruzzo says.
The Basic Health Plan, the state-subsidized program for the working poor run by the state Health Care Authority, is also in serious trouble.
Two major carriers, Providence Health Care and QualMed Washington Health Plan, last fall informed state authorities that they would not participate in the program this year. They, too, blamed adverse selection and financial losses for their decisions.
Providence, previously owned by Seattle-based Sisters of Providence Health System, was sold to Regence in a deal that closed Jan. 1.
As many as 18 insurance companies once contracted with the state Health Care Authority to offer coverage under the Basic Health Plan umbrella. That tally is now down to nine, although mergers accounted for some of the consolidation.
Of particular concern to health plans is the program's unsubsidized portion. Those 16,000 enrollees pay full premiums but also tend to drop in and out of coverage rapidly and use more resources than typical health plan enrollees would. That drives costs up and other enrollees out of the shrinking program, leaving primarily the most unhealthy enrollees behind.
The program's other 127,000 enrollees are partly subsidized by the state government, but the Washington Legislature has tightly limited budget increases for the Basic Health Plan in recent years.
Sisters of Providence lost about $1 million in 1998 on its Basic Health Plan coverage. QualMed, a subsidiary of Foundation Health Systems, Woodland Hills, Calif., asked for a freeze on further enrollment, which state authorities denied. The plan then decided to exit the program, although it later agreed to stay in two counties-Lincoln and Spokane-where no health plan alternatives exist.
Premera has indicated it will stay the course in the Basic Health Plan, despite its losses with the product. But other plans are expected to exit, slash benefits or raise rates dramatically.
For example, Regence's premiums in the program are skyrocketing by about 130%, according to state officials. Maternity and prescription benefits have been cut already, says Bruzzo, who says offering "good, broad coverage in this market would be unaffordable."
Unless a structural solution is found, health plans say the result can only be chaos.
State insurance officials agree that a legislative fix is needed. But they contend the solution should include a mechanism such as a "pay or play" requirement for employer-based health coverage or risk-adjusted payments to encourage plans to provide adequate access to healthcare by the state's working poor.