Battle to Cover Small Business, The

NJBIZ, Jan 7, 2008 by Gaudio, Thomas

Horizon makes comeback against market leaders in fight for commercial enrollees

THIRD-PLACE HEALTH CARE insurer Horizon Blue Cross Blue Shield of New Jersey is gaining ground on leaders Aetna Inc. and UnitedHealthcare in the highly competitive fight for commercial enrollees in the state, according to a recent report.

Horizon made the gains by lowering prices, tightening its underwriting policies and giving enrollees more choices, says Chris Lewis, an analyst with HealthLeaders-InterStudy of Nashville, Term. Horizon's bread and butter has been companies with less than 50 employees, he says. "Small-group is where the fight is. It's the engine of the economy there [in New Jersey]. It probably accounts for 70 to 80 percent of health care insurance business in the state."

In New Jersey, Aetna had about 1.3 million commercial members in health care maintenance organization (HMO) and preferred provider organization (PPO) plans, the two most popular types of managed-care plans. UnitedHealthcare had 855,679 such enrollees and Horizon of Newark had 786,539 as of Jan. 1,2007, the most recent data available, says research and consulting firm HealthLeaders-InterStudy.

Aetna of Hartford, Conn., saw a net decrease of 98,958 commercial New Jersey enrollees in HMO and PPO plans from Jan. 1,2006, to Jan. 1,2007, according to the data. UnitedHealthcare, a division of Minneapolis-based UnitedHealth Group, had a net increase of 100,273 commercial New Jersey members covered under such plans during the same period.

Meanwhile, Horizon picked up a net total of 245,079 such enrollees during the period, according to the analysis.

Joel Cantor, director of the New Brunswick-based Center for State Health Policy at Rutgers University, says the small-group health care insurance market in New Jersey has been "pretty robust compared to other states. Small businesses here are more likely to offer health insurance than small businesses nationally. It's a function of higher demand from a higher paid and more educated work force."

But because small businesses generally have limited resources, such companies often choose insurers based on price, Lewis says. Lowering rates is where Horizon, which has high local brand recognition, has "really been successful" he points out.

The insurer began lowering its prices in 2005 in response to Aetna's aggressive rate cuts from 2003 to 2005 that vaulted that company to its number one position in the New Jersey commercial market, says Lewis. "The question is, can these health insurers continue to make a profit while aggressively cutting prices?"

An important indicator of how well an insurer is doing is medical loss ratio, a number that represents how much an insurer pays out in medical coverage versus how much the company has left for administrative costs and profit, Lewis says.

For its HMO product in 2006, Aetna had a medical loss ratio of 0.79, meaning the insurer paid out 79 percent of its net income for members' medical expenses, according to data from HealthLeaders-InterStudy. During the same period for HMOs, the medical loss ratio for UnitedHealthcare's Oxford plan was 0.73 and Horizons ratio was 0.83.

Those ratios are "pretty good," Lewis says. She notes that financial data are not available for PPO plans because insurers are not required to file it with the state.

Such state filings for HMOs were the source for HealthLeaders-InterStudy's analysis. "So much of the business is PPOs. If you don't have PPO data, you really don't know how well they're doing."

PPOs are more popular with members than HMOs because HMOs provide fewer choices of doctors, hospitals and other service providers that a member can use, says Rich Fuerstenberg, a consultant in the Princeton office of Mercer, a human resources consulting company based in New York City.

The insurance industry is moving toward offering its customers even greater choice in the form of health savings accounts (HSAs) and other programs to help prevent and manage diseases.

But small businesses are less likely than larger companies to offer consumer-driven plans like HSAs to their workers because the expectation is the firm will also provide online tools for things like comparing doctors' quality and prices, says Fuerstenberg. Implementing such tools "requires additional resources that a small company may not have," he says.

Cantor says there has been growth in people switching to HSAs, an option in which a member puts away pretax money to be used for medical expenses in conjunction with a high-deductible insurance plan, but it has been "very, very slow."

"There's an open question of whether consumers want them," Cantor says. "They don't really fit the traditional concept of what health insurance is."

E-mail to tgaudio@njbiz.com