Healthy Choice: Rival HMOs Team on New Plan for Businesses
By VITA REED
Kaiser Permanente and Health Net Inc. have put their rivalry aside to launch a joint health plan in California.
The plan, called Risk Adjustment, is aimed at businesses with 100 or more workers. Oakland-based Kaiser is Orange County’s largest health maintenance organization, with more than 340,000 members; Woodland Hills-based Health Net Inc. counts 175,000 local members.
The goal of the new plan: to reduce the cost of health insurance for businesses and boost choice while also giving the health plan operators a chance to gain market share in a sluggish environment.
Health Net and Kaiser still are “fierce competitors,” said Brad Kieffer, a Health Net spokesman. “This doesn’t change. We just want to bring some innovation to the marketplace.”
Health Net expects about 30,000 businesses in California will sign up for Risk Adjustment by year’s end, Kieffer said.
Businesses that sign up for Risk Adjustment get a 5% reduction in their premiums. Workers get a choice between a Health Net or a Kaiser plan.
Health Net offers a traditional network of medical providers, such as doctor groups and hospitals, while Kaiser has a “staff-model” HMO with a closed system of doctors and hospitals.
“We decided that this might be something that would appeal to the midsized” market, said Dennis Lum, Kaiser’s director of channel strategy and systems.
The health plan operators first started collaborating on what became Risk Adjustment about three years ago, he said.
“We just began the launch and we’re beginning to get good interest,” Lum said.
Risk Adjustment has been sold on a pilot basis for about nine months, Lum said. The pilot period, he said, allowed Kaiser and Health Net to work out policies, procedures and other internal issues before a larger rollout.
The companies hope more choice in one plan appeals to state businesses.
Health plans base their premium rates on the estimated future healthcare costs for a certain group of workers. Groups with a higher percentage of people with health problems are charged more by their carriers.
Most businesses, particularly larger ones, like to offer workers more than one health plan option, such as those from Kaiser, Health Net or PacifiCare Health Systems Inc. of Cypress. Advocates say the competition improves pricing, quality and service.
“The price difference is something we want to show through to the employee,” Lum said. “(For example), if Kaiser costs 10% less than Health Net, I want the employee contribution to be less for Kaiser.”
But two-plan situations do have risks that concern some insurance companies.
One worry is adverse selection,a situation where one health plan attracts more sick people than another.
To avoid the cost consequences from adverse selection, Kaiser and Health Net will hire an actuarial company to pull pharmacy and demographic data about four months after a business signs on to Risk Adjustment.
Actuaries will determine which plan gets a higher cut of enrollees with health problems, including chronic conditions such as diabetes, high blood pressure or cancer. The health plan that has a riskier, sicker patient group will get a payment from the partner plan to even out the costs.
“All of the financial settlement in all these calculations is completely invisible to the purchaser,” Lum said. Premiums won’t change, either, he said.
Meanwhile, insurance brokers are taking a wait-and-see attitude.
“Employers are trying to find stable products,” said Dennis Rainey, vice president, employee benefit services with ABD Insurance & Financial, which has offices in Irvine and Torrance.
Rainey, while calling Risk Adjustment “a creative way” to help employers achieve plan and premium stability, said it’s too early to see how it might break out in the market.
Coordination Challenges
One challenge could be coordinating quotes between the insurance broker and benefits consultants, he said.
Kaiser and Health Net primarily plan to use the insurance broker community to market Risk Adjustment. Brokers who want to sell it, however, must attend training sessions that provide continuing education credits.
The training is meant to help brokers understand the plan’s features, including the risk adjustment and assessment pieces, Lum said.
“Any broker in good standing with Health Net and with Kaiser, who has valid broker agreements with us, can attend one of these sessions and be certified to sell the product,” Lum said.
Kaiser doesn’t have plans to team with another commercial, for-profit health maintenance organization to offer a plan similar to Risk Adjustment, Lum said. Instead, Kaiser first wants to make sure that Risk Adjustment works.
“It will be interesting to see the employers’ response,” said Rob Semrow, a health insurance broker and president of the Orange County Association of Health Underwriters.
Semrow, who works at Millennium Corporate Solutions in Irvine, said he expects to see more “innovative ideas” for businesses’ health insurance coverage.
