🔒After ConnectiCare’s exit, some experts say state’s fully insured small group health insurance market is broken

When ConnectiCare announced last month it was exiting the fully insured small group market in Connecticut, it became the second carrier to do so this year, after Harvard Pilgrim.

And it left just a handful of insurers offering such plans in the state — Anthem, UnitedHealthcare/Oxford and Cigna. Since 2018, Aetna has offered only one plan on the market.

That landscape has prompted a number of experts in the field to utter the words “market failure.”

There were warning signs about ConnectiCare’s intentions at a hearing held by the state Insurance Department this summer into requested double-digit premium rate increases.

“ConnectiCare at that time talked about the significant loss they’re experiencing, especially in the fully insured small group market,” said Connecticut Business & Industry Association CEO Chris DiPentima. “That’s just not sustainable for them to continue to lose that amount of money.”

DiPentima said he continues to see the cost of health care among the top three concerns cited by his members.

For insurance brokers serving those businesses, the exit leaves them in a tight spot.

“Providing less choice to my clients is always bad,” said Jason Gutcheon, a partner at Professional Business Insurers of West Hartford. “Anytime you have less competition, prices tend to go up.”

He also said ConnectiCare’s exit is bound to have a knock-on effect on the remaining carriers that may be asked to absorb the company’s book of business.

“If a broker like me takes one of my many ConnectiCare small group plans and I move them to Cigna or Blue Cross or Oxford, they have to take them,” he said. “It’s guaranteed issue. They can’t deny them. So what happens? Their block of business gets unhealthier by default.”

And that makes rate requests go up yet further.

Some of those clients however, may opt either to forgo insurance altogether and push their employees onto the state’s healthcare exchange to find individual coverage, or they may join the growing trend toward self-insurance.

That can mean either a level-funded plan — something still offered by ConnectiCare — or fully self-insuring by funding their own plan, essentially taking on the risk that they formerly assigned to an insurer.

“Most employers have really moved toward some aspect of self-funding,” said Jeff Hogan, president of Upside Health Advisors in Farmington. “We’re in a really tough place right now, quite frankly.”

That’s because the trend just adds to the pressure on fully funded plans, as better risk moves to the self-funded arena, leaving older and sicker — in other words more expensive — employees behind.

DiPentima said he talks to companies a lot about getting comfortable with the risks around self-insurance, where a plan can be upended by one or two employees experiencing an expensive medical event.

“That comfort level has a lot to do with the communication with the employees,” he said. “Making sure we’re talking about how we stay healthier as individuals in that plan.”

Usually that will mean implementing a formal wellness program.

“Traditionally it’s been — okay, the employee will deal with their health and I won’t ask them about it,” he said. “When you roll out a wellness program, the employee and the employer are working together to make sure they’re all as healthy as they can be, and so that barrier that was there before becomes a little blurred.”

Most companies with self- or level-funded plans also purchase stop-loss insurance to protect against catastrophic claims.

One significant financial difference for level-funded and self-insured plans is they don’t have to comply with state mandates for insurance coverage, giving them more flexibility on cost.

Fully insured plans are required to cover dozens of coverage mandates, including seven new ones — ranging from telehealth and urgent crisis center services to mental health wellness exams — adopted by the state legislature this year.

CBIA has long advocated reviewing, and potentially eliminating some mandates as a way to tackle premium costs, and ConnectiCare’s exit from the small group market has renewed those calls.

“Those mandates total up to about $2,500 per individual per year in health insurance costs,” said DiPentima. “Some of them may be necessary, but clearly all of them probably aren’t.”

On the other hand, mandates do provide coverage that employees may value.

“It’s fine to say, look, if insurance didn’t cover anything, it would be cheaper, I’m sure that’s true,” said state Sen. Matt Lesser (D-Middletown), who co-chairs the legislature’s Insurance and Real Estate Committee. “The worst thing you can have is insurance where you think you’re covered and then you get sick and it turns out you’re not covered.”

No one believes there’s a single, silver-bullet solution to the problem. But Upside’s Hogan said one of the largest areas to tackle is bending not just the premium cost itself, but the underlying medical cost curve.

“The costs just have been insane,” he said, of consistently rising medical expenses. “There hasn’t been much of a focus on value-based health care. We still are predominantly fee-for-service or volume-oriented rather than outcome and quality-focused.”

The Kaiser Family Foundation reports that Connecticut ranks ninth in the nation for per capita healthcare spending at $12,489 per person, with the U.S. average at $10,191. The state ranks 12th on premiums for employer-based insurance at an average of $7,717, against a national average of $7,380.

Spending per payer on private insurance in the state has grown faster than for Medicaid or Medicare.

At a recent forum convened by the Connecticut Insurance Department, the Connecticut Hospital Association outlined the continuing effects of the pandemic on care costs, saying patients arriving at the hospital are sicker, which in turn makes hospital stays longer. Supply chain issues — though not as acute now as in 2020 — persist and have driven up costs.

Meanwhile attrition in the workforce has forced hospitals to turn to more expensive staffing agencies to fulfill their needs.

These realities, along with ConnectiCare’s withdrawal, certainly increase the pressure on legislators in the upcoming session to find answers.

Lesser admits the small group market is now “fundamentally broken,” and said, among other things, he sees lawmakers continuing to drive efforts to set annual healthcare spending benchmarks that began this past legislative session.

“I am particularly concerned about hospital consolidation and pharmaceutical prices as major drivers of healthcare increases across the entire spectrum,” said Lesser.

But his first priority solution for small businesses?

“I think the reason you’ve heard calls for a number of years for a public option is not because of some sort of ideological necessity. I think it’s because we’re seeing a real market failure,” he said.

The public option — in Connecticut that has meant legislative efforts in recent years to adopt a state-sponsored health plan for small businesses and nonprofits — has been stoutly opposed by the insurance industry, legislative Republicans and the CBIA.

“The public option is a competition to undermine, disrupt, and ultimately eliminate the healthcare insurance industry,” said Senate Minority Leader Kevin Kelly (R-Stratford). “In Connecticut we like to fashion ourselves as the insurance capital of the world, and that industry employs somewhere in the neighborhood of (40,000) to 50,000 jobs and families. So when you talk about the public option, you can’t ignore that.”

Lesser said there’s currently no new public option bill drafted for the next legislative session, which begins Jan. 4.

Kelly said an alternative way to try to tackle premium costs would be a state reinsurance plan — essentially replacing the Obamacare subsidy that has been chipped away at the federal level.

“Under the Affordable Care Act, when the federal government paid reinsurance subsidies, premiums were stable and declining,” he said. “So what we proposed was a state-based reinsurance program. The exchange had it evaluated twice and in both instances it demonstrated that this was a real achievable plan that would reduce premiums by up to 30%.”

But if past experience is a guide, he’s not hopeful about its chances.

“I can’t get that bill out of committee,” he said.

In a recent interview, Gov. Ned Lamont said he remains lukewarm about the state taking on the financial risks of offering a public insurance option to small businesses. But he also said the onus is on private insurers to come up with better solutions.

“I need the insurance companies to step up and help me with that small business market,” Lamont said. “We’re creating a preferred network for our state employees where they go places where you get the most value, which is quality as well as cost, and I’d love to see the small business market do the same thing.” 