Victor Pantoja, administrator of Kidsville Pediatrics in Haines City, Fla., began searching for a new HMO for his five employees early this year, when he heard that his existing insurer might be shut down.
Some insurance firms wouldn't return Pantoja's phone calls. Others promised to send him application materials but never did. One HMO even gave him five toll-free numbers to call. The first four didn't work. After dialing the fifth number, he was put on hold for 45 minutes.
"Then to top it off, by the time we finally did get an application, they'd raised the rate they initially quoted us," Pantoja says. "We've been getting the runaround. It's really frustrating."
Pantoja is among the thousands of small employers affected by what many call blatant-but long tolerated-discriminatory practices by insurance companies in Florida.
The controversy started about four years ago, when health insurers began slashing the commissions paid to sales agents on policies written for businesses with one to five employees, in effect blacklisting the smallest groups by dint of low incentives.
But the situation has worsened since Feb. 1, when Heathrow, Fla.-based SunStar Healthcare was placed in state receivership for falling below capital-reserve requirements. The HMO's closure forced 84,000 individual and small-business customers-including Kidsville Pediatrics-to seek new health coverage. Thousands like Pantoja have been stonewalled or outright rejected.
Though state law forbids insurance firms from turning away even the smallest businesses, insurers are keenly aware these clients cost them money. One hospital stay can run upward of $10,000, far more than small employers pay in annual premiums.
Agents say that's why many insurers have cut small-group commissions to as low as 1% from 10% to discourage them from accepting that business. And many agents admit the cuts have indeed made them lose enthusiasm for taking on small groups.
"It's very painful for us every time we write an ultrasmall-group policy," says John Sinibaldi, an agent in Seminole, Fla. "A policy with a $300 monthly premium means $3 a month for us. Factoring in the administrative costs, the gas it takes to visit a potential client. . .we've lost money without even setting pen to paper."
But after filing more than 2,000 complaints with state regulators, former SunStar members may finally be in line for some relief. The Florida Department of Insurance sent letters last month threatening to revoke HMOs' operating licenses if they didn't comply with state law.
"It appears that some HMOs are effectively denying former SunStar subscribers access to coverage by impeding and frustrating their inquiries," according to the letter dated Feb. 24. "The department will consider noncompliance. . . as a violation of (Florida law), which may result in administrative action."
Many small employers, however, remain unconvinced, claiming the department has made similar promises in the past only to forget them.
Responding to a rash of complaints in 1998, for instance, Insurance Commissioner Bill Nelson issued a written warning that year calling insurers' commission-cutting tactics illegal and unfair.
"The practice by some small-employer carriers of paying minimal agent commissions on sales to the very smallest employers violates the fair marketing provisions of (Florida law)," the bulletin reads. That proclamation, though, was softened in February 1999 to say the practice would be prohibited unless the insurer could prove that it did not "adversely affect the fair market and broad availability of health benefit plans to small employers." But even that was never enforced. By the end of the year, there was so much protest from the industry that the whole idea of a rule was dropped.
"We basically agreed not to pursue it (and) that we'd withdraw our bulletin," explains Torre Grissom, legislative assistant on health issues for the Florida Department of Insurance. "It makes for a very difficult case when you don't have anyone supporting your endeavors."
Ironically, one of the groups that protested the 1998 rule was the Florida Association of Insurance and Financial Advisors, which represents 5,500 agents. In fact, many agents did an about-face on the issue late last year, says Sinibaldi, a member of the Tallahassee, Fla.-based association.
"Here's the rationale: If state officials say a commission is too low, they can also say it's too high. We don't want the DOI regulating our paychecks," Sinibaldi says.
Agents, he explains, are much better off accepting a 1% commission on small-group business than having Florida regulators step in and level commissions on all policies to, say, 5%. Some states, such as California and Texas, have already done so.
Other agents, though, feared a backlash by health insurers. "Insurance companies hold all the cards," Sinibaldi says. "They can yank their products from agents without so much as giving a reason, and then they'd have nothing to sell."
The list of companies that have cut commissions on small-business policies reads like a who's who of health insurers: Aetna, AvMed, Foundation Health, Humana, Physicians Healthcare Plans and United HealthCare.
Florida insurers, for their part, say their hands are tied. Many defend their decisions to slash commissions as an economic necessity, saying they chose to do so only after the Department of Insurance refused to allow them to raise premiums in the past.
Consumer groups, of course, see it differently. They argue the commission tactic not only discriminates against small businesses but discourages the sale of insurance at a time when 2.8 million Florida residents, or about 19% of the state's population, are without healthcare coverage.
And as for the small employers, they're keeping their fingers crossed.
"I hope somebody really leans on these insurance companies," Pantoja says. "All we want is to be able to provide our employees with health insurance. It's not right for them to do what they're doing."