Corporate Research Group’s Weblog

Principal Financial Group is exiting the health insurance business.  Why?  The business is changing, requires investment, and is a shrinking component of the company’s overall portfolio.  While only partly about reform, the decision highlights the strategic dilemma facing marginal players.  Expect more of this kind of thing in the months ahead.

Principal agreed to allow UnitedHealth to act as the incumbent when accounts come up for renewal over the next 36 months. United will pay Principal an undisclosed amount based on the number of lives renewed.  The exit doesn’t impact Principal’s wellness, vision or dental lines.

Principal had about 381,000 fully funded group health members as of year-end 2009 and 615,000 ASO lives (health, dental, vision and disability).  But health insurance membership was declining in 2010 along with revenues and operating earnings.  Premiums and fees fell 15% to $705 million through six months of 2010, while health insurance accounted for just 15% of total company revenues.  Principal’s health plan membership spanned 31 states, but was concentrated in the central U.S.

This week’s issue of Health Plan Market Trends Letter is a data dump of enrollment figures for major health plans – all of which reinforces familiar trends.  Fully funded enrollment continues to fall.  Self-insured enrollment continues to rise.  Medicaid and HSA-compatible high-deductible health plans are enjoying gains.

Blue Cross Blue Shield of North Carolina agreed this week to refund $155.8 million to 325,000 individual plan members, reflecting reserves for policies that will no longer exist after the introduction of insurance exchanges in 2014.  WellPoint agreed last week to pay $20 million in rebates to 90,000 individuals in Colorado following a state review of premium rate hikes.  Notes Charles Boorady of Credit-Suisse:

While for unrelated reasons, rebates reflect increased diligence by states on rates. However, at the same time, states are pushing the White House to delay minimum MLR implementation, and we believe such delay would more than offset the impact of pricing push-back and rebates.

I’ll say it again.  The reason we have healthcare reform is that the managed care industry failed to address the problem of the uninsured and failed to consistently provide plan members with the insurance protection they need when they are sick.  The way the industry will survive is to solve the puzzle of how to reduce healthcare costs while simultaneously improving quality.  It’s called adding value.  Judging by the decision of several health plans to stop offering child-only policies in certain markets, I’d say the industry still doesn’t get it.  Extended coverage appears in the Sept. 20 issue of Carl Mercurio’s Health Plan Market Trends Letter.

CMS administrator Don Berwick, M.D., in announcing that Medicare Advantage premiums paid by seniors will fall 1% in 2011 with little or no reduction in benefits, while membership is expected to rise 5%:

Despite the claims of some, Medicare Advantage remains strong and a robust option for millions of seniors who choose to enroll or stay in a participating plan today and in the future.

Here are the facts in two parts:

1. Blue Cross Blue Shield of North Carolina agreed to refund $155.8 million to approximately 325,000 individual health plan members (215,000 policies) at the request of state regulators.  The refunds will come from the plan’s active life reserves, essentially a portion of premiums put aside in the early stages of a policy to help hold down rates in the future.  Since the life of individual policies will be shortened by the introduction of new plans through insurance exchanges in 2014, there’s a pile of money left over.  The DOI lacks the authority to force BCBS-NC to refund the money; however, the plan still agreed.

2. The DOI granted BCBS-NC a 5.37% rate increase for its Blue Advantage individual plan, 160 basis points lower than the 6.97% hike that BCBS-NC wanted.  The state did approve BCBS-NC’s request for a 2.06% increase for the company’s Blue Options individual product.

Now the spin.

It’s not exactly clear what BCBS-NC gains by agreeing to the refunds – except perhaps a wee bit of goodwill at a time when health plans are being cast as villains.  I emphasize “wee bit.”  A member who pays $380 monthly for individual coverage would receive a $690 refund — about 1.5 months of premiums.  “I don’t know exactly what they stand to gain,” says a state DOI spokeswoman.  “That’s a good question,” says a BCBS-NC spokesman adding, “We’re rolling with the change.”

While the DOI can’t order refunds, it can initiate a rate hearing or take you to court.  That could have been ugly for BCBS-NC, an organization badly in need of some positive PR following the North Carolina State Health Plan fiasco and the embarrassing leak of planned anti-reform ads.  The timing is also right.  It’s a one-time refund tied to reform, and the company has a new chief executive who’s calling for change.

A bigger question is whether regulators in other states will now be tipped to the issue.  “WellPoint is among the most exposed,” says Charles Boorady of Credit-Suisse, adding that UnitedHealth and Cigna are among the least.

This cartoon in today’s Wall Street Journal made me laugh.

The number of people in America without health insurance rose 1.3% to 50.7 million in 2009, according to the U.S. Census Bureau.  Blame the recession and rising unemployment in part for the increase; about 6.6 million people lost employer-sponsored coverage in 2009. 

As I’ve said before, the inability of the health insurance industry to address the problem of the uninsured is a major reason why we have healthcare reform.  Another is the industry’s failure to consistently provide plan members with the insurance protection they need—and the healthcare coverage they have paid for—when they are sick. 

I predict the next round of reform will come if (skeptics say “when”) the industry fails to demonstrate exactly what purchasers of insurance get for the 13% of healthcare premiums that go toward administrative costs, executive compensation and industry profits.  Helping to reduce costs while improving healthcare quality would be a good start.

I haven’t yet gotten a copy of the new whistleblowing memoir Deadly Spin by former Cigna executive Wendell Potter, but David Whelan over at Forbes has, and he’s written up some highlights.  Writes Potter:

The further up the corporate ladder I climbed, the more I saw, and the more disillusioned I became with my job, my profession and my industry….With each promotion I got a better understanding of how insurers get rid of enrollees they don’t want.

Arnold Relman, former editor of The New England Journal of Medicine, in his recent review of John Wennberg’s new book Tracking Medicine:

Because of its overhead, as well as the expense of billing and collecting it imposes on doctors and hospitals, the investor-owned for-profit insurance industry probably adds at least $150–$200 billion to the annual cost of providing health coverage to the American population, as compared with government-run programs such as Medicare. These added costs will become even greater under the new law because the industry will grow….I find it difficult to believe that this industry contributes anything that is close in value to what it costs the US health system.

And therein lies the rub for managed care.  Unless the industry can prove value, there’s a good chance it will be regulated out of business during some future round of “healthcare reform.”

Here are the headlines from Carl Mercurio’s Health Plan Market Trends Letter for September 13, 2010.

• No Surprise: Healthcare Reform Does Little to Reduce Cost
• Chart: Health Spending Growth Projections
• Health Plan Cost Trends: The Big Picture
• More Premium Rate Sagas for Health Plans
• Emdeon Expands Medicaid Presence with Pricey Acquisition

From the online version of Isreal’s Haaretz Newspaper:

A Clalit Health Services representative allegedly offered a Rahat resident money if he were to transfer his family – including two wives and 15 children – to the health maintenance organization, the competing Leumit HMO has alleged in a complaint to the police and the Health Ministry.

And you thought Dave Colby was bad.

A patient-centered medical home without PMPM payments to primary care physicians?  It would seem to defeat the whole purpose of the PCMH concept – which is to wean doctors off fee-for-service (i.e., pay for volume) and move toward capitation and other incentive-based payments (i.e., pay for results) in hopes of improving care and reducing cost.

Blue Cross Blue Shield of North Carolina has a different view.  About 78 PCPs in 15 practices (serving some 40,000 BCBS-NC members) qualify for the plan’s PCMH Blue Quality Physician Program, which pays higher fee-for-service reimbursements for office visits than the company’s usual rate.  How much higher?  “Double-digit higher,” says Genie Komives, M.D., senior medical director for BCBS-NC, who declined to release specifics.

One reason why BCBS-NC doesn’t make PMPM payments, Komives says, is that patients who generate the most physician orders for medical services also generate the most office visits, so doctors are getting paid extra to see the patients most in need – rather than getting a capitated rate for both the healthy and sick, Komives says.  “When you’re actually spending time with the patient in the office, that’s the value,” she adds.

Extended coverage appears in the Sept. 7 issue of Carl Mercurio’s Health Plan Market Trends Letter.

Annual healthcare premiums rose 5% to an average of $5049 for single coverage in 2010, while family coverage rose 3% to $13,770, according to a Kaiser Family Foundation survey.  While the increases were modest, the share of premiums borne by employees soared.  Employees paid 19% of the premium for single coverage, up 200 basis from 2009; for family coverage, employees paid 30% of the premium, up 300 basis points.  Kaiser notes that this is the first statistically significant increase in employee contribution since the survey began in 1999.   ”Workers paid more as employers responded to the economic downturn by increasing employee contributions and reducing the scope of coverage,” the report’s authors say.  The trend toward self-insurance among employers continued, rising 200 basis points to 59% in 2010.

We don’t always get a chance to write about some of the smaller Blues plans.  Blue Cross Blue Shield of Montana (Helena) announced that Sherry Cladouhos would retire as chief executive by the end of 2010, after five years in the position and 36 years with the company.  She will be replaced by BCBS-MT president Mike Frank, who has been with the company for 11 years.  In 2009, BCBS-MT reported a net loss of $9.8 million on revenues of $503.3 million.  In 2008, the company posted net income of $17.7 million on revenues of $516.2 million.  The company served more than 200,000 members in 2009.

There are always questions when a company’s chief financial officer suddenly quits or gets fired — especially when the company is in the middle of implementing a major strategy shift.  Cigna Corp. announced the departure of CFO Annmarie Hagan, naming company treasurer Thomas McCarthy as acting CFO.  Cigna took the unusual step of making public its entire separation and non-disclosure agreement with Hagan.  Two things stood out for me: 1. Hagan gets a lot of money — $1.4 million, plus bonus and long-term compensation payouts; 2. Neither Cigna or Hagan is admitting it violated “any law, rule, order, policy, procedure, or contract.”  Separately, Cigna reaffirmed its 2010 profit forecast.  The implication is clear: the company is going out of its way to show that all is well.  A company spokesman told me the departure was a “mutual decision” and wasn’t related to any malfeasance or disagreement with company strategy or policy.  For the most part, Wall Street seems to be buying the explanation.  Shares in Cigna are down just 0.3% in morning trading in a mixed market opening.