Neighborhood Health Plan of Rhode Island’s quiet entrance into the commercial health-insurance market this year could open up a new avenue for smaller employers to stabilize health-care costs – and it might put the health plan into limited competition with the state’s two dominant carriers.
Neighborhood Health, created in 1994 to administer the state’s RIte Care health plan for low-income families, has been providing health insurance to a consortium of 21 social-services agencies since December. The contract covers 5,200 employees and dependents, with annual premiums of $14 million.
By pooling their employees, the agencies – which several years ago formed a purchasing network called Provider Resources & Benefits (PRB) LLC – were able to negotiate a three-year deal that caps annual rate increases at 12 percent.
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“It really is the third alternative,” said David C. Reiss, head of the purchasing group and executive director of Ocean State Community Resources, one of the group’s members.
“My fear initially was Neighborhood Health’s reputation for working only with the RIte Care population,” Reiss said. “I thought, ‘how am I going to sell this to 3,000 employees.’ But they created this plan entirely around our needs.”
The contract marks a strategic shift for Neighborhood Health, and potentially an option beyond UnitedHealthcare and Blue Cross & Blue Shield of Rhode Island for businesses willing to enter group contracts.
Neighborhood Health’s core focus will remain its RIte Care business, which has swelled from 30,000 members in 1999 to about 70,000. But Christopher Koller, Neighborhood Health’s CEO, said the carrier is staking out an opportunity to extend the virtues of group purchasing to smaller employers.
“If you look at who’s getting the best deal for health insurance these days, it’s the large groups like big companies, the state, and RIte Care,” Koller said. “What we’re saying is that it’s possible for small- and medium-sized employers to get the benefits of large-group purchasing.”
The key, Koller said, is to have a large enough group – at least 1,000 “lives” – and to get an up-front commitment from the group’s individual members. It does not work to have one primary organizer, a chamber of commerce or trade association for instance, without an agreement from the individual employers.
“We can’t price it that way,” Koller said. “If small- and medium-sized employers want to act as a single group, they have to be willing to make that commitment.”
Koller downplays the notion of Neighborhood Health as the third competitor in the state’s commercial health-insurance market – something many business groups and lawmakers have touted as a way to spark competition and tame rate increases. But he said the carrier plans to move cautiously toward filling the growing niche of smaller employers in search of stable pricing.
“Health insurers compete on the strength of their reserves and on pricing, and we’re not trying to do that,” Koller said. “Our strengths are around service and long-term partnerships.”
He added that the market to provide long-term health insurance is limited to the number of employers who would be willing to commit to a group contract.
“We don’t project tremendous growth, because buying as a group is difficult,” Koller said. “But I think group purchasing is the future for small- and medium-sized employers who want long-term price stability.”
Terry Fleming of Park Row Associates, consultants, who were hired by PRB to help shop the market for a health plan, said Neighborhood Health would be well positioned to emerge as a third player in Rhode Island’s commercial health-insurance market should it choose to do so. It already has the infrastructure in place and does not face the regulatory hurdles that an out-of-state health plan would.
“One of the positive things about this is that someone has come forward with a very effective, well-managed plan as an alternative for what Blue Cross and United have,” said Fleming, who previously worked in sales and marketing for both United and Blue Cross.
“(Neighborhood Health) certainly has the services, the network and the benefit package to be competitive. The PRB contract has proven that,” Fleming said.
In the mid-1990s, PRB had a three-year deal with Harvard Pilgrim Health Care, through which the group enjoyed an extended period of low rates. But when that contract expired – shortly before Harvard Pilgrim pulled out of the state – PRB saw premiums spike more than 40 percent.
The group later switched to United, which Reiss said offered a good plan but would only agree to one-year contracts. The result was fluctuating health-care costs for the group’s individual agencies, which made it difficult to plan budgets.
“We wanted a long-term deal, but by that time the long-term deals were gone,” Reiss said.
Two years ago the group approached Neighborhood Health about a long-term contract, but at the time, its network of providers was too small, Reiss said.
So Neighborhood Health decided to expand its network to accommodate a new line of commercial line business. It contracted with Health Care Value Management, which bills itself as the largest independent preferred-provider network in New England.
The arrangement added several hundred providers to Neighborhood Health’s existing network in Rhode Island, plus thousands of doctors in Massachusetts and other New England states.
Since signing its contract in December, PRB has gotten what it wanted: a three-year deal – with annual premium increases capped at a relatively reasonable 12 percent – a rich benefit package and a broad provider network.
“They’ve put together a product that has really zeroed in on people’s needs,” said Ray Arsenault, executive director of Spurwink/RI, a Cranston special-education school and residential program, and a PRB member.
The plan, which covers Spurwink’s 160 employees and more than 200 dependents, isn’t perfect, Arsenault said. Some co-pays are higher than the agency’s previous contract with Blue Cross. (Spurwink was not part of PRB’s contract with United).
But some co-payments are lower, he said, and the agency has the peace of mind of knowing that it won’t see a 20 or 30 percent spike in premiums next year – a prospect that is all too real for other small employers. Arsenault also lauded the plan’s flexibility and customer service.
What’s more, Neighborhood Health has “given up power” by allowing access to group claims data so that PRB can track utilization rates, using the information to help control costs. For instance, if the pool has a relatively high number of emergency room visits, that could mean that a lot of members are forgoing a designated primary care doctor and using more-expensive emergency care instead.
“It’s like opening up our books, so we can see the data together and determine what initiatives are needed to control costs and improve the quality of health-care being delivered,” said Rob Harkins, director of Neighborhood Solutions, Neighborhood Health’s commercial business.
Koller said the PRB group fit neatly with Neighborhood Health’s mission to expand access to quality health care regardless of a person’s ability to pay, because the agencies also have a socially conscious mission and deal regularly with Medicaid populations.
But as it carefully expands its commercial business, Neighborhood Health will look for opportunities from just about any group of smaller employers that is willing to make the commitment to jointly purchase health insurance. Koller said Neighborhood Health is in active discussions with three groups and it has targeted seven more as likely partners.
“If you’re willing to commit to us for multiple years…then we’ll sit down and talk and see what we can work out,” Harkins said.
Forging a committed group, however, is the biggest hurdle, and it could face regulatory scrutiny. Both state and federal laws prohibit employers from organizing for the express purpose of purchasing health insurance.
But in the case of PRB, it was formed eight years ago to buy various products, including liability, auto and workers’ compensation insurance. Because it is a multi-purpose, limited liability company, it qualified as a “bona fide” association under federal law, which means it is not subject to laws prohibiting group health purchasing, Reiss said.
