| Judi Hilman, the executive director of the Utah | | | | the risk of the group (the law allows a 30% |
| Health Policy Project (UHPP) recently opined that | | | | discount for the healthiest groups and no more |
| the Public Employee Health Plan (PEHP) should be | | | | than a 30% surcharge on the most expensive |
| available to all small businesses in Utah as a way | | | | groups). Carriers price this way to provide |
| to make health insurance more affordable. Ms. | | | | affordable coverage for the youngest and |
| Hilman points out that "PEHP's claims costs are | | | | healthiest folks. This helps pool the risk and |
| less than 4%, which compares favorably to the | | | | moderate premiums for all of us. |
| average claims costs for private insurers of 15 | | | | If PEHP would try to implement their current |
| percent". (We assume she meant "administrative" | | | | underwriting model against the commercial |
| costs rather than "claims" costs.) | | | | underwriting model, they would attract only the |
| UHPP contends that by allowing PEHP to cover | | | | sickest and oldest of the groups. This is not |
| small business in Utah, the cost of insurance would | | | | merely a guess, but is a broadly accepted fact of |
| go down based on the lower administrative costs | | | | "field underwriting". If commercial carriers' prices |
| of PEHP, which would in turn allow more small | | | | are geared towards the young and healthy and |
| businesses to offer health insurance to their | | | | PEHP uses "one size fits all" pricing it will be an |
| employees. UHPP also reasons that by saving | | | | unmitigated disaster of the highest order for Utah |
| substantial amounts of money, PEHP can help | | | | taxpayers. |
| subsidize the Children's Health Insurance Plan and | | | | Because of this, we believe the UHPP proposal will |
| lower the uninsured population. | | | | result in exactly the opposite of what Ms. Hilman |
| Before we jump on the bandwagon of the UHPP | | | | purports will happen; she said "PEHP will have the |
| proposal, let's look at the tough details. Let's | | | | advantage of including a younger healthier |
| consider the reasons that PEHP has 4% | | | | population in its risk pool, decreasing costs for all |
| administration costs compared with 15% costs | | | | beneficiaries." In order to assume that, she must |
| with private carriers. | | | | believe that a younger population will join PEHP, |
| First, unlike commercial carriers, PEHP has no bad | | | | whose current risk pools include a slightly older |
| debt with customers. That is the advantage of | | | | population than found with small business. This |
| doing business with taxing entities. They never go | | | | contention underestimates the power of pricing |
| out of business and if they run short of money, | | | | and its effect on the types of people that actually |
| they increase taxes. This is not so in the real | | | | enroll. |
| world of small business insurance. If a business | | | | On the other hand, if the plan is for PEHP to |
| can't pay - they seek protection under | | | | mimic the current commercial pricing model - then |
| bankruptcy - and under law, the carrier has to | | | | what are we creating? The answer is; a |
| continue paying claims for 1 to 2 months without | | | | government entity competing with private |
| collecting premium. That would be a shocking new | | | | business - with taxpayers ready to bail out any |
| addition to PEHP's administrative costs. | | | | mistakes. This would not be consistent with |
| Next, PEHP has very low billing costs. That is | | | | free-market ideals. |
| because their clients, state and local agencies, are | | | | For PEHP to enter the small group market - with |
| limited in number and rarely change. Most of their | | | | no experience - would be extremely risky for the |
| clients are large - like State employees and water | | | | taxpayers of the State of Utah. Under law, the |
| districts. It will make a big difference in overhead | | | | State would have to make up any loses in their |
| to go from billing and reconciling scores of bills to | | | | block of business. On the other hand, if PEHP |
| thousands of bills every month. | | | | made a "profit", it could not be shared with other |
| Additionally, PEHP also enjoys low marketing costs. | | | | blocks of business. The pool for State Employees |
| Currently the low number of potential PEHP clients | | | | must be kept separate from the Government |
| minimizes the need for a marketing department. | | | | Trust and the Children's Health Insurance Plan as |
| This will not be the case if they want to sell in the | | | | well as the proposed new pool. Despite Ms. |
| small group market. PEHP will either need to hire a | | | | Hilman's optimism, we could not subsidize CHIP |
| sales staff, or set up an 800 number and hope | | | | with any savings from other PEHP pools. |
| businesses call them or they will need to pay | | | | The bottom line is this: PEHP does not have an |
| commission to agents. All of these marketing | | | | internal cost advantage over the current carriers |
| solutions will cost a substantial amount of money. | | | | in the small group market. Their claims expenses |
| Finally but most importantly, PEHP lacks the staff | | | | (what they pay doctors, hospitals and |
| and infrastructure necessary to properly | | | | pharmacies) are about the same as and in many |
| underwrite small group cases on a large scale. | | | | cases more than the commercial carriers. They |
| Underwriting is the process of evaluating and | | | | would not be able to serve the private small |
| pricing for risk, and developing underwriting | | | | group market for the same 4% overhead with |
| capability is an expensive proposition. Small | | | | which they serve the government. They would |
| employers are an extremely price sensitive | | | | be entering a treacherous market in which they |
| crowd. Health insurance is usually their second or | | | | have no experience. The taxpayer would be at |
| third biggest expense - behind wages and | | | | risk if things go wrong. Keep in mind that losses in |
| sometimes worker's compensation costs. A small | | | | health insurance can be huge. |
| employer will change plans in a heartbeat if it they | | | | As a general philosophy, the Utah Association of |
| can find a better value. Price too low and you lose | | | | Health Underwriters believes in a competitive |
| money. Price too high and your competitors take | | | | marketplace. We are working hard to give Utah |
| your most profitable groups. If PEHP is to develop | | | | employers more choices and better information in |
| the department necessary to underwrite small | | | | the marketplace. We are in favor of expanding |
| employers on a large scale, it will incur substantial | | | | options in the private health care market. We |
| additional administrative overhead. | | | | support government and charitable subsidy of |
| Last year when UHPP first proposed that PEHP | | | | those that need real help. |
| enter the small employer market to compete | | | | If the legislature believes that it is worth asking |
| with commercial insurers, the most serious design | | | | PEHP to expand its mission, we would strongly |
| flaw had to do with the development of premium | | | | recommend a serious analysis of the underwriting |
| rating structures. PEHP is accustom to serving | | | | and marketing of plans before jumping into |
| clients that have composite rates (meaning one | | | | unfamiliar waters. If UHPP's predicted outcomes |
| rate for all singles and one rate for all families) and | | | | are probable, then we would welcome the addition |
| community rates (all groups pay about the same). | | | | of PEHP into the small group marketplace, but the |
| Commercial small group rates are age-banded | | | | taxpayers should not be at risk for the losses of |
| (older employees pay more than younger) and | | | | PEHP as a competitor in the private market. |