Tighter rules sought on ‘bundle’ discounts

It’s a common practice, most notably in the travel industry: Buy piecemeal, and you’ll pay full price; buy a package, and you’ll get a deal.
Well, many insurers with diverse business lines offer such deals as well: home and auto policies, life insurance with investments, health coverage with dental insurance.
For the companies offering the discounts, it’s a way to increase their business and strengthen their ties with policyholders. And to the extent that they actually save on administrative costs, for example, or even reduce claims, the discounts can pay for themselves.
For employers, it’s a small but welcome benefit. UnitedHealthcare of New England, for example, will take $1 to $7 off per month, per employee, based on the number of products involved, if you get dental, life and/or disability coverage along with a health plan.
But what if you are an insurer that sells only, say, dental insurance, and a larger competitor that offers both health and dental coverage uses “bundling” to snap up your business?
That is exactly what Delta Dental of Rhode Island says it has faced with Blue Cross & Blue Shield of Rhode Island for years, and it has filed several complaints about it. The most recent complaint was last November, when Delta argued that this is a predatory marketing practice. United has faced similar concerns – though not as much controversy – for its own “administrative discounts.”
Insurance brokers have generally supported bundling. But concerned about the impact on small carriers, the R.I. Department of Business Regulation has tried to limit the practice.
Now, in an effort to resolve the issue for good, Health Insurance Commissioner Christopher F. Koller has proposed new guidelines – to be issued as a “bulletin,” less formal than regulations – that would define what is and isn’t allowed.
A draft of the bulletin was issued Feb. 19. In an interview, John Aloysius Cogan Jr., executive assistant for program and policy review under Koller and the hearing officer in the latest Delta Dental complaint, said the bulletin was inspired by conversations in that matter and research done to try to resolve the conflict.
Cogan went back to a 2002 DBR decision in which Blue Cross was allowed to offer a discount to employers who bought workers’ compensation coverage from The Beacon Mutual Insurance Co., as long as the discount was actuarially justified and fully passed on to the employer.
In general, health insurance rates in Rhode Island are tightly regulated, and in the small- group market, the law specifies what factors are allowed and how much they can affect rates – with no “bundle” discounts mentioned. But in 2002, the DBR found that the Blue Cross discount wasn’t really a rating factor, because it had nothing to do with whether the group was large or small, young or old, healthy or unhealthy, etc.
Allowing some bundle discounts seemed reasonable, Cogan said, because they benefit employers. “But [insurers] can’t use this as some kind of marketing scheme. … We want to make sure companies aren’t using this to undercut the competition.”
Thus the draft bulletin set four guidelines:
&#8226 Any discounts must be quantifiable and actuarially justified – meaning that to offer a $1 administrative discount for adding disability coverage, for example, United would have to show that it actually saves $1 per person, per month in administrative costs.
&#8226 The savings must actually be passed on – so if the insurer saves $2 per person, it must pass on $2 in savings, not just $1.
&#8226 The discount must be available to all “similarly situated employer groups,” but only to those who avail themselves of the bundle.
&#8226 The insurer must notify Koller’s office of the discount and file the documentation to justify it; however, the discount can then be available immediately (what is known as a “file-and-use” approach), though Koller can stop it if he finds the discount isn’t in fact justified.
The response has been generally positive, especially since some feared that bundling was going to be banned or more severely restricted. (The Delta Dental complaint was withdrawn after Blue Cross agreed to actuarially justify its medical-dental bundle discount.)
“We feel as if we’re in a better place right now than when we started this discussion,” said Jason Martiesian, United’s local director of government relations. “We believe that at the appropriate time, when the bulletin is finalized, we’ll be able to justify the credit.”
Kim Keough, spokeswoman for Blue Cross, also expressed support for the new guidelines.
And William Delmage, president of WD & Associates Inc. and also of the Rhode Island Business Health Care Advisory Council, a nonprofit group created by brokers, also said this is a good approach.
“We’re definitely in support of package savings, but we want to make sure the savings are actuarially sound,” he said. “You want to practice fair trade, but you want to give the consumer a discount if it makes sense.”
One question the bulletin doesn’t address is whether insurers could offer discounts for packaging health coverage with, say, flexible spending accounts.
“I think we’ll have to cross that bridge when we get to it,” Cogan said. &#8226