Health insurer to cut small-group prices

July 26, 1994|By Patricia Meisol | Patricia Meisol,Sun Staff Writer

Mid Atlantic Medical Services Inc., in an apparent move to beef up sales and investor confidence, won permission from state regulators yesterday to lower prices on its small-group business by an average 15 percent.

The lower prices, charged for the company's health maintenance organization, Optimum Choice Inc., came amid indications that MAMSI was facing increased competition for customers -- not just on price, but also on service.

The Rockville company is battling for market share with Blue Cross and Blue Shield of Maryland and other insurers that are marketing new products in response to a new state law aimed at small businesses.

Last week, some analysts said they were concerned that MAMSI could not enroll enough new members to continue its five consecutive quarters of strong revenue growth. Shares of MAMSI stock, up more than 73 percent since the beginning of the year, dropped 15 percent in a two-day period last week despite record second-quarter earnings.

MAMSI's request to drop prices was hand-delivered to state insurance regulators Wednesday, the day its stock tumbled in heavy trading.

At a conference call that day, the company's chairman, George T. Jochum, estimated MAMSI so far has signed only 1,000 to 2,000 small business customers, according to analysts who took part in the conference. More than 1 million people are enrolled in MAMSI managed care plans, including 482,000 in Optimum Choice and a second HMO.

Thomas P. Barbera, MAMSI executive vice president, yesterday called it a coincidence that rates were refiled the same day earnings were released. "We kept working on the rates, and made a determination that the classifications we had could be improved, that they made more sense," he said.

Shares of MAMSI dropped 87.5 cents yesterday to close at $40.50 in a heavy day of trading on Nasdaq. More than 1.1 million shares changed hands.

MAMSI's request to drop rates was the third of its kind approved by Maryland insurance regulators since a reform aimed at making health insurance more affordable to small businesses went into effect July 1. Blue Cross set the pace when it announced a 30-percent drop in rates on two of its more popular products just 10 days into the reform.

State regulators also approved a rate reduction of 15 percent for Guardian Life of New York. A fourth request, from the Travelers Corp. to lower rates, has been held up because regulators have "strong objections" to the insurer's request to decrease rates for single people and raise them for families, said Gene Cherng, actuary in charge of approving the rates for the Maryland Insurance Administration.

The new Optimum Choice rates were the result of adjustments the insurer made to the way it factors age into the basic starting rate for everyone. The reform law requires insurers to file one rate for all groups as well as formulas for adjusting those rates using the only two factors allowed -- age or geography.

The new Optimum Choice formula appears to benefit younger customers over older ones, regulators said. People over age 50 will see no change. Those under aged 29 will get a 17 percent decrease.

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