Temperatures rising for health insurance companies

Vermont Business Magazine, Mar 01, 2000 by Kelley, Kevin

Vermont's health insurance scene is now so inherently unstable that even the state's physician-governor is publicly abandoning long-held beliefs. In a recent interview with The Wall Street Journal, Howard Dean indicated he will no longer try to discourage for-profit health insurers and health maintenance organizations from entering the Vermont market. Indeed, Dean says he has instructed Elizabeth Costle, head of the state's insurance and health-care administration agency, to begin courting such companies rather than shooing them away.

"A balanced insurance market is a good thing," the governor told the Journal. "And you're not going to achieve that by restricting for-profits."

On several earlier occasions, Dean had contended that profit-making HMOs are largely responsible for the problems and practices that have prevented managed care from meeting the expectations of its advocates. The governor warned that for-profits often attempt to "cherry-pick" among people seeking health coverage, enrolling those with statistically low likehoods of filing claims and excluding others who may well require expensive care.

Even as he was reversing his position, Dean continued to insist that Vermont would not tolerate cherry-picking on the part of insurers and managed care providers. But because the economics of health care in the United States today tends to reward hard-headed business practices, Vermont may find it difficult to provide a wider-range of consumer choices, while at the same time preventing large out-of-state health-care corporations from operating in accordance with marketdriven logic.

It's not as though Vermont has no experience with forprofit health insurers, however. Several nationally known companies already provide coverage to thousands of individual policyholders and members of group plans. And more businesses of this sort have recently started operating in the state or will soon establish Vermont subsidiaries.

They're attracted by a dearth of competition in a market dominated by two nonprofit organizations: Blue Cross/Blue Shield of Vermont and MVP Health Plan. But the relative shortage of options has so far not caused Vermont health-care consumers to suffer in comparison with residents of other states.

Health insurance costs, while climbing sharply, remain below the national average. Due largely to state government initiatives such as the Dr Dynasaur program (extension of Medicaid to cover all qualified, uninsured children), Vermont also has the country's second-lowest rate of uninsured individuals. That ranking, however, offers scant reassurance to the roughly 40,000 people, 6,000 of them children, who remain without coverage.

The proportion of uninsured Vermonters could also climb well above its current 7 percent level unless insurance premiums are made to slow their rapid rise. The 100,000 or so state residents covered through government programs such as Medicaid and Medicare are in no immediate danger of losing their protection. A significant segment of Vermonters enrolled in Blue Cross/Blue Shield or MVP, however, may not be able to keep pace with premium payments surging upward at double-digit rates. At the same time, the two largest insurers in the state cannot be accused of price-gouging to pad profit margins.

Blue Cross/Blue Shield, the insurer for 175,000 Vermonters, sustained a $2.5 million loss in 1998 on revenues of about $230 million. The not-for-profit has since managed to staunch the red ink, reporting income of $452,000 for the year through the end of last November.

The Vermont Health Plan, an HMO established in 1997 under the auspices of the Vermont Blues and three regional medical centers, has not exactly been rolling in dough, either. The Vermont Health Plan, with 26,000 members, reported a yearly net loss of almost $4 million through last November.

As the only Vermont-based health insurer operating in the state, Blue Cross/Blue Shield stands as one of the few familiar landmarks on today's constantly shifting terrain. But despite their 55 years of history in the state and an improving financial picture, there's no guarantee that the Vermont Blues will remain a fixture forever.

In neighboring New Hampshire, for example, severe financial problems led to last year's takeover of that state's Blues by Anthem, Inc. The Indiana-based business, one of the largest health-care corporations in the United States, has expressed interest in acquiring other Blues in New England.

It was the hazardous nature of health care economics in a small state that brought about the demise of Kaiser Permanente's Vermont HMO. The giant corporation simply could not figure out how to make money in the state, calling it quits in 1998 after racking up a nearly $16 million loss in Vermont that year. Kaiser Permanente had entered Vermont with high hopes just two years earlier after buying the Community Health Plan's in-state operation.

Kaiser's pullout forced its 109,000 Vermont customers to search for alternate forms of coverage. About 12,000 state residents are still covered through Kaiser, while the fate of a few thousand others is unknown. Nearly 30,000 former Kaiser customers have been brought under Medicaid's umbrella. About 10,000 have moved over to Blue ross/Blue Shield. And close to 50,000 chose to enroll with the MVP Health Plan.