It is hard to cope with the dynamo known as Blues. Who is going to tell them what to do when they have about a 30% market share in Illinois with no competitor even close to that number? The “caring card” carries considerable weight with employees who equate it with security and the heavy advertising for the health plan that says they care. Employers have been known to be too scared to change away from the Blues, due to the perception on the part of employees, that there is no better coverage. The advertising that they do by sponsoring what seems to be every home run or first down in Chicago sports is effective. This will tell at least in part, how they can afford to pay for it, when most other insurance carriers can’t.
By the way, this article is not being written because we won’t do business with the Blues or because we see them as the only carrier with faults. However, over the years we’ve gotten tired of hearing the misconceptions and deceptions about what is being offered and how and why they are able to make some of the offers that they do. Suffice it to say that knowing how certain carriers operate can protect an employer from making a choice that can later make it difficult to move on to another vendor. For instance, knowing that the Blues continually only provide claim data that is outdated, helps one prepare for the fact that leaving the carrier will be difficult at best. If you would like us to provide an analysis of your current situation and an underwriting evaluation of where you stand, please feel free to contact us at firstname.lastname@example.org .
The Question is- Is what you see, what you get?
When receiving a group medical insurance proposal from the Blues, they can claim to have better discounts than the rest of the competing offers (be it a self-funded or fully insured plan) and their pricing to get the business will surely reflect substantial discounts. But now what? Will you as the client ever actually receive the full value of their hospital contracts or physician discounts? Most likely not. Will your broker or consultant advise you of the same? Most likely not. Many broker/consultants don’t have a clue how to experience underwrite and have even less of a clue as to how these plans really operate.
The Principles of Deception
Let’s look at a few things. Back in the mid-1980’s competition was stiff. There were a lot more insurance carriers. The TPA business was getting off the ground. HMOs were popping up in people’s garages, and PPOs were being added to indemnity plans. Managed Care was booming. What were the Blues doing? Offering proposals that included “negative retention!” (For those of you who don’t know, retention is the fancy word for expenses to run an insurance program.) Brokers were actually telling clients (and competitors quoting against the Blues) that the Blues could operate programs with less than zero expenses! You’d think there was enough common sense in the business to think something fishy was going on, but that is not always the case. There’s nothing like a juicy override agreement to override common sense.
So, how do they do that?
The answer is, they don’t. The Blues were ingenious enough to know the market was changing and they had the advantage. The advantage was their relationship with the hospitals and doctors. They had the original PPO, except nobody knew it other than them.
Let’s concentrate on the hospitals. The Blues provide an annuity to every hospital in their network. They have most hospitals in their network. Some would say every hospital in the Western Hemisphere . The hospitals depend on this “annuity” since the Blues are the dominant player in Illinois . (That’s not to say this isn’t or wasn’t happening in other states). The Blues reimburse all hospital claims to the hospitals at Cost, Plus roughly 5% profit.
Let’s say the hospital charges are $10,000, but the cost is really $7,000. Cost plus 5% is $7,350. The Blues pay $7,350 to the hospital and keep the $2,650 profit. By keeping the difference, but charging the client as though the claim was for $10,000, the Blues could claim that there was no retention due to the profit they were taking (but charging as a claim to the client). The claim report to the client shows the $10,000 in hospital charges. (By the way, do you think the employee paid coinsurance on $7,350 or $10,000?)
Well, you say, what about PPOs?
Surely things are different there. Well, yes and no. The hospital accounting still is applicable, but new items have been added. The Blues have had to give up some of their profits in order to compete with other PPO plans, but they have still found a way to keep more than most. Negative retention had to give way and eventually disappeared, once they had to give up some money and show some PPO discounts.
Access Fees you will not believe
One of their brilliant ideas that most don’t catch is that they charge for access to their PPOs as a claim charge rather than identifying a per employee fixed monthly fee (we can’t recall if they had this idea first or stole it from First Health/Affordable).
Their charge for accessing the PPO can amount to as high as 28% of projected net paid claims (including non-PPO claims). On one case reviewed, that charge amounted to $31.11 per employee per month (and this was before the pooling and risk charges were added and the whole amount was divided by the objective loss ratio to make the charge even higher). That is far higher than the usual $3 to $6 per head that most independent PPOs charge.
But that’s OK, the discounts are greater with the Blues, aren’t they?
Maybe the Blues discounts are greater, but we will never know. Unlike (most, but not all) other carriers and third party administration arrangements, the Blues never show their actual discounts.
When we underwrite and review network performance, we usually like to separate billed charges on an In and Out of Network basis. Then we remove ineligible charges from the amounts billed In Network and see what the discounts were compared to actual eligible In Network charges. This gives a more true picture of the discounts achieved.
The Blues only provide their discounts on renewal as projected savings. You never get to see what the real number was! The number initially looks pretty good at 35% to 42% of projected paid claims. But, if you look at other networks with good coverage, as a percentage of actual paid claims, the discounts are usually much higher (50% to 55% of actual paid claims), with access charges that are far less. Remember, most other networks report their actual discounts too, so you actually know what you are getting for your access charge. So, the Blues might have better discounts, but chances are that you, the employer, may never benefit any more than you would with another network. In fact, you may end up paying more.
There are other tricks that are used by companies to overcharge for network access or overstate their discounts. You can review on this web site another article on that subject in THE TRUTH section of the web site.
What about that National Network?
Yes, there is a thing called the Blue Card network that can make sure that you have the opportunity to be in network on a national basis or cover your employees in other states. Just be aware of a few things. Those other state plans get the claim first and then process the claims with the local Blues. It is not a seamless proprietary network. Each Blues plan wants their piece of that discount pie. The delays can also be a bone of contention, since the delay can cause duplicate bills. If the Blues charge for access to the network as a percentage of network savings (as they have been known to do), how do you know you aren’t being charged for savings on duplicate charges due to delayed payment?
Needless to say, with the discount game being played, there is lots of room in underwriting to price for the competition. They may have to give up something in the rates on the front end, but the profits will most likely be there. The Blues also like to give claim experience that is six months old as part of their renewal. This makes it especially difficult for other carriers to underwrite, since the usual standard is to have claims experience that comes to within at least three months (and preferably two) of the proposed effective date. This helps the Blues to insure that you will receive higher than normal quotes from the competition. Underwriters from other carriers view Blues experience with trepidation, since the discounts are unknown and the experience is old. This forces the competing underwriter to be conservative in their assumptions.
The Blues (unfortunately now other carriers are following this poor example) also won’t provide experience on groups of less than 150 employees, although they want that experience if the group is over 100 lives and you want them to quote. Makes sense? You’ll also have to cite federal law and fight with them a bit to get Schedule A information for a group of less than 150, even though the IRS demands the information for a group of over 100 employees.
What the Blues have been able to do is successfully continue to market their market dominance by appealing to those who fear they may not have the same coverage elsewhere. For employers, the fear of employee reprisal and discontent is often enough to get them to accept some pricing tactics that they would not accept from other insurance carriers or third party administrators. Those brokers who continuously push the Blues are easily motivated to do so by override agreements to commission arrangements that Eliot Spitzer has no need to challenge, since they are not in his state. The weak and continually changing insurance commissioners in Illinois are not about to challenge the Blues and their tactics either.
Editor’s Note: This is a Classic, written several years ago by Jeff Seiler, an Illinois based insurance consultant. For additional reading, go to his website www.ssbenefits.net and read an update recently posted that “proves” , in the eyes of some, his theories.