Businesses rush to avoid new law

June 18, 1994|By Patricia Meisol | Patricia Meisol,Sun Staff Writer

Hundreds of small businesses, scrambling to blunt the impact of a new health insurance reform law that takes effect July 1, are renewing policies early, signing with different insurers or finding other ways to avoid the law's changes.

The actions could mean up to a year of insurance at the same price for companies that otherwise are expecting significantly higher premiums under the new law. Some tactics would also allow brokers to lock in customers who might drop their insurance when confronted with the more expensive policies.

Maryland Insurance Commissioner Dwight K. Bartlett III, disappointed at the industry's tactics, warned that some of the maneuvers could be illegal. In such instances, "We'd go after people to the extent possible, it's so clearly an evasion of the law," he said.

Driving these changes is a new law that requires insurers selling policies with renewal dates of July 1 or after to offer a mandated set of benefits at the same price to all policyholders, regardless of their health.

The law, passed last year by the General Assembly, affects companies with between two and 50 employees and requires the insurer to rate groups only on their age or geography rather than on their medical history, as they did in the past.

L Small employers are not required to purchase the insurance.

The extent of companies rushing to avoid the new law isn't clear. In general, according to brokers, it involves mostly healthy groups whose prices were historically low. But the reform, which is designed to spread the costs more evenly within the state's small group market, is expected to raise the prices for these healthier groups.

"I'm sure there are a lot of people out there wracking their brains about how to get around the law," said Nelson Ayling, chief of market conduct for the state Insurance Administration.

For brokers whose customers' policies end this month, it has been a busy time.

"Most of my clients up for renewal in June were trying to lock in under the old system. Those groups that are healthy are trying to lock in and those with health problems were waiting until July," said Patrick Brown of C.J. Brown & Son Insurance Brokers in Rockville, a four-person shop licensed to sell 25 different insurance products.

With reports of price increases up to 30 percent, he said, "I have been frantically locking in their old rates."

Larry Studnicky of Lawrence Studnicky Financial, an independent agent in Severna Park, said he advised clients to switch carriers mid-year to lock in rates. "Any companies that have renewals after July 1 are at the mercy of the insurance commissioner," he said.

But Mr. Ayling said: "There's a lot of scare tactics: 'Your rates are going to double, triple, quadruple.' It's true that rates will go up, but if that group has one sick person -- it doesn't have to be sick, it could be in an automobile accident -- they will go up anyway."

In at least one case where an agent advertised that he could lock in "pre-reform" rates with early renewals, Mr. Bartlett, the insurance commissioner, said his office contacted the agent's insurance company, Blue Cross and Blue Shield of Maryland, which agreed to stop the agent.

Many of the large insurers' products are still not approved by state regulators. As a result, some of these companies are taking extraordinary actions, including writing one-month policies, to keep worried customers from defecting.

"What carriers are doing if they have groups renewing and they are not approved is just extending the renewal until they are approved," said David T. Johnson, regional sales director for HealthPlus, the managed care company of New York Life Co., which is among those that used just that tactic.

Prudential HealthCare and Aetna Health Plans of the Mid Atlantic, too, are guaranteeing rates on contracts expiring between July 1 and the time when their own versions of a !B standard benefit package are approved, which is expected at any point. That gives customers who could benefit from the reform a chance to stay with their existing insurer.

Aetna notified customers in May that it would extend renewals a month or two, said Ken Phelps, a Baltimore marketing representative.

Other companies -- worried that even if their policies are approved in the next few days that they still couldn't give customers sufficient notice of their new rates before July 1 -- are renewing their July 1 contracts a day early, on June 30, for another year.

"The only alternative we had was to terminate 1,000" policyholders, said Kathy Fitzgerald, regional manager of American Medical Security, a small-group insurance specialist in Green Bay, Wis., that renewed policies with a June 30 date. "Rather than lose them, we figure we'll take our lumps later," she said.

Some insurers blamed the delay in approving new policies on regulators who were sending back contracts five and six times for corrections. But regulators say they are working around the clock to tell companies what's wrong and insurers are not fixing the problems.

June is the second most important month after January for brokers and insurance companies to renew policies or sign new business.

But because of delays in the regulatory process and in the approval process by the Insurance Administration, only four companies and their subsidiary health maintenance organization plans, 10 products in all, have been approved to sell new standard benefit package plans.

That gives approved groups, which include Blue Cross and Blue Shield of Maryland and Mid Atlantic Medical Services Inc., a competitive advantage in signing up new customers.

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