Discussion:
Read Case Study (below)from Multi-Sector Casebook in Health Administration, Leadership, and Management, and respond to the following:
1. Summary of the major facts - Summarize the facts in narrative or outline form. Include the most important and pertinent incidents in the situation. (Do not simply restate the entire case.
2. Problem(s) - The facts of the case reveal one or more problems that require attention. Indicate at least three (3) problems affecting GreenHealth and explain their importance.
3. Alternative Solutions and Probable Outcomes - Analyze optional courses of action. This is one of the most important parts of the analysis. Remember that a decision not to act or to do nothing is always an alternative. However, doing nothing also has repercussions - sometimes worse repercussions than any other action. Identify three alternatives you would present to the senior leadership team.
4. Recommended Solution - Recommend 1 solution per problem (3 recommendations total). Each recommendation should include a justification for the action, how the action would be implemented, and the probable outcome. While some of this information has been included in previous sections, it is still important to present the recommendation in its final form and to justify its selection.
5. Include two or more references to support your rationale.
Case: Dropping Small-Group Insurance Products
Case Contributor Scott D. Musch
Situation
A large, publicly-traded national health insurance company, GreenHealth, announced its decision to drop a number of small-group insurance products in Virginia because of financial losses. Originally scheduled to occur in four months, GreenHealth has agreed to allow customers affected by the decision to continue on their existing products until their scheduled renewal dates, at which point the products will be stopped. The company will continue to offer a number of small-group products in the state, although the remaining product options will generally have higher premiums and less attractive benefits.
Paul Dennis, VP of Small Group Products for GreenHealth, advocated for the decision to drop the products instead of proposing a rate increase, which would have required GreenHealth to justify the increase to the state. The change will have a significant impact on the company's small-group product line in Virginia and will result in lower risk membership and lower revenues through reduced premiums, but also higher earnings. The small-group market for GreenHealth has been losing money for the company for the last two years. The products being dropped are the ones that have the most consumer demand, including the company's most popular health insurance plan, WorkHealth EPO (exclusive provider organization). The products that will be retained are much less cost competitive in the market. Small employers in Virginia do not have many plans left from which to choose. GreenHealth originally planned a hard stop of the products in four months, however, the insurance regulators pushed back and GreenHealth compromised with allowing the coverages to end on renewal dates. The regulators had an issue with ending the coverages abruptly as it would have affected customers' deductibles and out-of-pocket maximums.
Paul, in defending the company's decision to regulators and consumer advocates, argued that the small-group market in the state has been dysfunctional for a long time. The primary issues include community rating for premium rates (meaning everyone pays the same price), guaranteed issue (meaning health plans cannot turn individuals or groups down, regardless of preexisting conditions), and no requirement that anyone within a market buy insurance. Paul specifically cited adverse selection, hospital rate increases, and low premiums for mandated products as reasons. Recently it has become very difficult for health plans to obtain rate increases. Virginia is one of a number of states that has authority to deny proposed premium increases and under the Patient Protection and Affordable Care Act (PPACA), the Centers for Medicare & Medicaid Services (CMS) now has authority in conjunction with states to review potentially unreasonable increases in health insurance premiums to determine whether rate increases are justified. Under PPACA, CMS can provide states with supplemental funding to strengthen a state's rate review process.
Background:
According to America's Health Insurance Plans (AHIP) organization, small groups are classified as companies with 2 to 50 employees. Insurance coverage for small groups generally is fully insured. Employers purchase an insurance contract from a licensed health insurer or HMO, which assumes the full financial risk for paying healthcare claims. Small-group health insurance is offered on a guarantee-issue basis, meaning a small business cannot be denied coverage due to the health status or illness of its employees or their dependents. A majority of states have adopted premium rating rules that place limits on rate adjustments, including for such factors as health status and claims experience of the enrollees of a group.
Next Steps:
GreenHealth has approximately 300,000 small-group members in Virginia. Paul anticipates that the company only risks losing one-third of those covered lives since he expects many of the affected employers will switch to one of the higher cost products that GreenHealth will continue to offer. Small employers in Virginia do not have many other plans from which to choose. In general, small employer-sponsored insurance coverage will undergo significant changes under PPACA starting in 2014 when the health insurance exchanges are in place. Paul recognizes that given the significantly higher premiums and lower benefits offered by the products that remain, the company's membership losses could be much larger than anticipated. In 2011, with the 300,000 small-group covered lives, GreenHealth earned $1.4 billion in premiums but reported a medical loss ratio of 89.5%. The company's administrative expense ratio in Virginia hovered around 12.8%, generating a negative operating margin of 2.3%. Assuming a loss of 100,000 covered lives, Paul estimates the smallgroup product line in Virginia will swing to a positive operating margin (see Table ) despite the negative fixed administrative leverage that the company would experience from losing nearly $600 million in premiums.
Table . GreenHealth's Small-Group Product Financials in Virginia (2011)
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2011
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Pro Forma
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PMPM*
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PMPM*
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Covered Lives
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300,000
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200,000
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|
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Member Months
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3,060,000
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2,040,000
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Premiums
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$1,400,000,000
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$388.89
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$836,502,000
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$410.05
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Medical Expenses
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$1,253,000,000
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$348.06
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$714,000,000
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$350.00
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Medical Loss Ratio (MLR)
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89.5%
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85.4%
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Medical Margin
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$147,000,000
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$40.83
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$122,502,000
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$60.05
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Administrative Expenses
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$178,500,000
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$49.58
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$112,927,770
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$55.36
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Administrative Expense Ratio
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12.8%
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13.50%
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Operating Profit
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($31,500,000)
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($8.75)
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$9,574,230
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$4.69
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Operating Profit Margin
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-2.3%
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-2.3%
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1.1%
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1.1%
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