State bans bias in small-group market; insurers fight back

By Carol Gentry
8/13/2008 © Florida Health News

Two United Health subsidiaries in Florida have challenged a proposed state rule that would force them to treat all small businesses the same, whether they’re a mom-and-pop shop or a sizeable company with four dozen workers.

The rule, proposed by the Florida Office of Insurance Regulation (OIR), would require insurers to use the same application forms, medical questionnaires and methods of collecting information for all groups from 2 employees to 50.

This is a radical change for most insurers, agents say. Industry practice is to let employers with a certain number of workers -- often 10 -- or more submit a group application, which is quick and easy. Carriers take the word of the employer as to the state of the workers’ health. By contrast, smaller “micro” companies must have each individual fill out a medical-history form and sign to verify its accuracy.

“We feel this is an unfair trade practice,” said OIR spokesman Tom Zutell.

The result of the difference in approach is usually a significant gap in the price quotes, he said. The larger companies tend to get a low-ball price on the first year’s business, which often leads to a steep increase for the second year.

Meanwhile, the “micro” groups tend to get “rated up” – charged up to 15 percent more than the rates the carriers have filed with the state -- based on underwriters’ determination of the risk based on the workers’ health histories.

The higher rates often are unaffordable for workers. Studies have shown a correlation in the size of the business and the likelihood of coverage; the smaller the business, the less likely the workers are to have health insurance.

OIR published the proposed rule in the June 20 issue of Florida Administrative Weekly and held a public hearing on July 23. The agency accepted written comments through Aug. 6.

But two related companies that would be affected by the rule filed a challenge Aug. 4, saying OIR lacks the authority to require the change. The two are UnitedHealthcare of Florida Inc., an HMO, and United HealthCare Insurance Co., a traditional insurer based in Connecticut. Both fall under the sizeable umbrella of United Health Group, the second-largest U.S. insurer.

The Division of Administrative Hearings has set arguments in the case for Aug. 22. It isn’t clear how much delay this will create; sometimes DOAH challenges drag on for months or years. And if United gets a ruling it doesn't like, it could turn to the appellate courts. Meanwhile, Zutell said, carriers are free to keep doing business as usual.

Insurance broker John Sinibaldi of Seminole says he sees OIR’s point about discrimination against micro groups. On the other hand, he said, the small-group carriers are in a tizzy trying to decide how to treat all applicants the same.

If they decide all companies up to 50 workers have to go through the underwriting process, it will force employers to make all the workers fill out forms on their health histories – a hassle for the workers and the boss alike. On the other hand, if they do away with underwriting for tiny groups, they fear being overrun with bad risks.

The rule “may result in an incredible amount of confusion and frustration as the carriers try to decide which way to go,” Sinibaldi predicted in July.

Already he’s being proved right. Humana, assuming that the rule would be in effect for 2009, issued agents a whole new set of instructions and forms that would require even sizeable groups to have all members fill out health histories.

Meanwhile, Blue Cross and Blue Shield of Florida, betting that the rule won’t be in effect anytime soon, sent out forms and instructions for underwriting the groups under 10, while leaving it voluntary for the ones from 10 to 50. Voluntary means it likely won’t get done, since companies don’t volunteer to fill out forms if they don’t have to. Blue Cross and Blue Shield spokeswoman Valerie Rubin said her company’s policy changes gained approval from OIR, “so we know we are on solid ground.”

A spokesman for UnitedHealthcare’s operations in Florida declined to comment on the company’s decision to challenge the rule.