Two health insurance companies’ recent decisions to stop selling individual health insurance policies in Orange County and other parts of California isn’t a signal of a lack of demand or space in the market, brokers said.
But Aetna Inc. and UnitedHealth Group Inc. said there are too few individual policyholders to make it worthwhile for them.
Others in the industry said the pullouts shouldn’t hurt people who still desire to get individual plans, whether on their own or through the Covered California insurance exchange, which goes live in 2014.
“Quite frankly, there are way enough carriers and quality carriers like Blue Cross and Blue Shield and … a number of others,” said Alan Kichler, president of Mission Viejo-based brokerage Golden State Health Insurance.
And there will always be individual policyholders. Some consumers make too much money to qualify for federal and state subsidies and will be able to pay higher deductibles than those allowed in plans through Covered California, Kichler added.
Business Decision
Aetna and UnitedHealth announced their decisions this summer.
It made news in view of the now-delayed implementation of federal healthcare reform and of the upcoming introduction of Covered California, the state’s health insurance exchange, which some believed would steal some individual customers.
West Hartford, Conn.-based Aetna, which has more than 192,000 HMO and PPO members in the county, said in a statement that it reviewed its portfolio of individual plans and “determined that we are no longer able to meet the needs of our customers while remaining competitive,” adding that it provided a 180-day notice to its individual policyholders.
Blue Cross of California, a Thousand Oaks-based unit of Anthem Inc. in Indianapolis; San Francisco-based Blue Shield of California; and Woodland Hills-based Health Net Inc. are among the health insurers operating in California that will continue to offer individual policies. Kaiser Permanente, which operates OC’s largest HMO with 470,000 members (see story, page 37), also sells individual policies.
Covered California will begin to enroll individuals and small businesses on Oct. 1, with coverage starting Jan. 1.
Aetna and UnitedHealth spokespeople were careful to point out that other factors—not Covered California’s emergence—influenced their decisions to pull out of the individual insurance market in California.
Aetna has 49,000 individual health insurance policyholders in the state, or 4% of the market. Seven thousand of those are in Orange County. The insurer has 1.5 million members overall in California.
Published reports indicate that Aetna’s individual policy business has been profitable, “but it’s not that big of a deal to walk away from it because it’s so small,” said Carl McDonald, an analyst who covers Aetna for Citigroup.
“… We estimate that 20% to 30% of our membership will migrate to Covered California” anyway, company spokesperson Anjie Coplin said in an email.
At Minneapolis-based UnitedHealth, which employs some 3,900 workers in the county and has almost 223,000 HMO and PPO members in OC, “we had a small number of members, and the business line hadn’t really grown,” spokesperson Tyler Mason said.
He said most of UnitedHealth’s 8,000 individual policyholders in California were legacy business that it got from its 2005 acquisition of PacifiCare Health Systems Inc., which was based in Cypress.
Don Goldmann, a veteran OC broker who’s vice president of Word & Brown University, a business unit of Orange-based Word & Brown Cos., said Aetna and UnitedHealth would need more members in order to make individual plans work.
“You have to have sort of a critical mass of people insured in order to create an adequate risk pool. There’s no secret to insurance,” Goldmann said.
“The vast bulk of us are generally healthy. We pay our premiums in case we’re going to get sick. But because we don’t get sick, the 8% of us that are extremely unhealthy get our money; so it’s really shifting money around.”
Risk Pool Shifts
Goldmann added that since the risk pool will include people with pre-existing conditions, it becomes more difficult to spread insurance costs.
And that’s expected to be more challenging, because for the first time, individual health insurance policies will be governed under “guaranteed issue” rules requiring carriers to provide coverage to people with pre-existing health conditions.
Kichler, for one, endorsed guaranteed issue, noting that he has a pre-existing condition “and no longer has to go through the underwriting process” as of Jan. 1.
“As long as you pay your premium, you have coverage,” he said.
The health reform law is expected to expand the individual insurance business but not without changes, including the fact that consumers will now have to pay more attention to costs, such as monthly premiums, because they’ll have to pay for them out of pocket if they’re not covered by a group policy.
And some people will continue to go without coverage, which contradicts the expressed desires of the Obama administration and other healthcare reform advocates, who believe there will be more healthy people to spread the risk among.
David Bjorklund, a benefits specialist with San Clemente-based Benefit Pros Inc., said he’s skeptical of the idea that “all these healthy youngsters 18 to 30” will flock to get health insurance coverage, because premiums are expected to be higher than the penalty for nonenrollment put into place via healthcare reform.
Premiums “are more than a lot of these folks are going to want to spend when they’re unemployed, they’re making part-time wages, they’re in school, just starting out,” Bjorklund said.
Nonenrollment penalties start at $95 per adult in 2014 and go up to $325 in 2015 and $695 starting in 2016; annual premiums are expected to be in the thousands.
Bjorklund said he does expect the emergence of insurance exchanges to “drive a lot of people into the broker marketplace because they still just want to talk to somebody [who] they know, that they know is dedicated.”
But no one really knows how the new system will play out.
“I refer to it as the grand experiment,” Bjorklund said, “and we won’t know until the rubber hits the road.”
