United pays $67,500 for R.I. violations

A “market conduct” examination of UnitedHealthcare of New England has found the company failed to comply with Rhode Island’s small-group health insurance law in several ways, mostly involving documentation, but also involving surcharges for groups with sicker members.
The violations – made public last Tuesday by R.I. Health Insurance Commissioner Christopher F. Koller – cost United $67,500 in fines, including a 10-percent discount for prompt payment. In addition, the company will have to undergo a follow-up review within six months.
Koller’s office also released a market conduct report for Blue Cross & Blue Shield of Rhode Island, which showed small “technical deficiencies,” as described in a news release, but overall compliance with the Small Employer Health Insurance Availability Act of 2000.
At the same time Koller released a policy report that, in his view, “affirms the value of the 2000 reforms in maximizing small-group enrollment by creating a larger, more stable risk pool and in setting parameters around how costs are to be shared by subscribers.”
The reforms instituted what is called “adjusted community rating” in the small-group market. Carriers base their rates on projected costs for their entire small-group population, and then they may adjust them based on members’ age, gender, health status and family composition.
Altogether, under the law, the adjusted rates can vary only by a 4-to-1 ratio – so if the youngest and healthiest group in a category pays, say, $200 per person, the sickest group can only be charged $800.
The policy report, authored by Hinckley, Allen & Tringale LP and DeWeese Consulting Inc., shows the 2000 reforms spread the risk and made insurance more affordable for groups with higher-cost members, but it also shows the market has continued to shrink.
From 2003 to 2005, the period covered by the report, Blue Cross lost 9 percent of its small groups and nearly 20,000 members, or 17 percent of its small-group enrollment. United reported gaining about 670 groups and 3,300 members, offsetting only part of the loss.
Altogether, Rhode Island small employer enrollment decreased by almost 14 percent in two years, the report shows – from 138,180 in 2003 to 119,036 in 2005.
Yet the figures may overstate the drop, Koller said, because the number of uninsured didn’t increase proportionately, and Blue Cross has said it tightened its eligibility rules in 2003, requiring groups to show proof of employment before adding a person to their health plan.
“There was a lot of abuse going on in the small group market,” Koller said. And since that dropoff in 2003-2005, he added, the enrollment decline has slowed.
The policy report cites a related trend that could also be affecting health insurance costs. Mean group size for both carriers has dropped, from 6.2 to 5.2 subscribers for United and from 4.2 to 3.8 for Blue Cross. For United, part of the reason is that in October 2004, it started covering “groups of one,” as required by law. By 2005, only 14 percent of United’s small groups and 52 percent of subscribers were in groups of 11 or more; for Blue Cross, it was 7 and 39 percent, respectively.
For insurers, the report notes, the opposite is better. “First, the cost of the administrative work effort required to attract, enroll and maintain a group is spread across more enrollees. In addition, smaller groups are generally presumed to be poorer risks because they are most motivated to purchase coverage only when someone needs it.”
The report urges policymakers to pay more attention to “groups of one,” because of the serious potential for adverse selection, and it suggests looking into the possibility of merging the individual and small-group markets in the long term.
In another area of concern to Koller, the report notes that each carrier has more than 50 plans available – often with minimal variations – and it recommends streamlining the offerings.
The report notes that 75 percent of subscribers at each carrier are in its five most popular plans, though the actual plans differ considerably: United’s bestselling products include far more employee cost-sharing than Blue Cross’, and they are also somewhat cheaper.
And United has healthier members than Blue Cross, the report found – plus they’re getting healthier as Blue Cross’ get sicker. In 2003, United rated 58 percent of its groups in the healthiest category, and by 2005, it was 75 percent. Blue Cross, by contrast, had only 31 percent of its groups in the healthiest category in 2003, and it dropped to 14 percent by 2005.
Some policymakers have suggested that, through its rates and products, United tries to skim healthy customers, and while Koller wouldn’t say quite as much in an interview, he did note that “the easiest way to make money in the insurance business is to find healthy people and exclude sick people, or else if you can’t exclude them, price them as high as you can.”
Determining whether insurers have done this was one of the purposes of the “market conduct” studies, and with United, the deficiencies that led to the fine are directly related to a lack of documentation that would have allowed the analysts to figure this out, Koller said.
United couldn’t produce a rate manual that showed in detail how rates are set, Koller said; a deficiency letter also shows it failed to “properly document” its use of age and gender factors and to maintain complete case files, among other violations.
And even though the law only allows rates to be raised or decreased by up to 10 percent based on the group members’ health status, United was found to be discounting rates by up to 3 percent for its healthiest groups, and increasing rates by up to 17 percent for sicker groups.
The insurer was not fined for that particular violation, however, because it has corrected the problem going forward, Koller said. But his office will continue to press United to document its rating procedures to ensure it is complying with the law.
“We take the obligation to make a level playing field very seriously,” he said. “If someone is finding a way to exclude sick people, that places a burden both on the consumers and on the other health plans on the market, the adverse selection. So if United can’t produce evidence of what they’re doing … in some ways the most significant thing we said to United is, we’ll be back in six months. Having examiners come in is no fun.”
Asked for comment on the report, which United CEO Stephen J. Farrell agreed not to appeal as part of a settlement that reduced the fine from the original $75,000, spokeswoman Debora M. Spano said United had never intentionally violated the law.
“A lot of what is cited are really technical issues that make it difficult – our interpretation versus their interpretation,” she said. “This is still a new law, and we’re still trying to work our way through it. … It’s just not black and white, ‘Here’s the line that you walk.’ ”
Spano said none of the violations had any financial effects on members, and “there are no consumer concerns as a result of this – it’s reporting.”
(The report did find several “consumer issues,” including inadequate access to information for small-group members and a possible failure to “fully and adequately” deal with complaints, but no fine was imposed for them.)
Spano said United is working to correct all the deficiencies, and it plans to have everything done by April 30. “We paid our fine, we paid it early, and we intend to comply with the law and move forward,” she said.
Blue Cross spokeswoman Kim Keough, for her part, said her company is “very pleased with the conclusion that we’ve been substantially compliant” with the law. She added that Blue Cross has submitted a plan to address the “minor, minor” technical issues found.
Separately, both insurers also continue to seek changes to the small-group law, including a widening of the allowed rate variation, to 6 to 1.
“We think the reform did accomplish some positive outcomes, and we do think it was a very positive step, but we do believe that some modifications would be beneficial,” Keough said.