Response slow to insurance law change


Last fall, state regulators decided to eliminate most required prescription benefits in health insurance policies for small employers. The goal wasn't to end insurance payments for medications, but to allow higher deductibles and co-payments - a change they hoped would increase competition and encourage businesses to offer insurance by making it more affordable.

Now, a month after the new pharmacy rules took effect, regulators say there are signs of progress on the first front.

Most insurers are developing new policies, posing a potential challenge to CareFirst BlueCross Blue Shield and Mid-Atlantic Medical Services Inc. The two together issue more than 90 percent of the small-employer polices that now cover nearly 450,000 Marylanders.

FOR THE RECORD - A box accompanying an article in yesterday's Business section misstated prescription drug coverage mandated by new state rules for insurance policies offered by small employers. The minimum plan, which has a $2,500 deductible and 75 percent co-payments, includes both brand-name and generic drugs.
The Sun regrets the errors.

What's unclear is just how many small employers will want to sign up for bare-bones coverage.

Brokers and insurers said they have seen little or no interest in policies that nearly eliminate prescription coverage.

While regulators expect there will be buyers for plans with more modest coverage than the old standard at lower prices, many small employers already buy riders to improve coverage over the minimums set by the state - spending an average of 43 percent extra on premiums for PPOs, or preferred provider organizations, according to state figures.

For many employers, particularly those that require highly skilled employees, it's not an option, benefits experts say. Without an adequate benefits package, they would have trouble recruiting talented workers and keeping the ones they have.

Even the old minimum "is not competitive in the marketplace," said Pete Borchardt, president of The Borchardt Group, a benefits consulting firm in Easton. He predicted that few employers would select the less generous pharmacy coverage.

Alice Katz, president of the eight-employee Vinca Group, an Owings Mills company that consults for nursing homes and other health clients, said she struggles each year to balance co-payments and deductibles against premiums. Unlike most employers, Vinca pays 100 percent of the premium.

When she renewed July 1 with an Aetna health maintenance organization, she increased co-payments on doctor and emergency room visits. But she didn't want to increase the deductible on prescriptions above the current $250.

"That's an important benefit for employees," she said. "I am very conscious of the cost of prescriptions to them."

Paul Hartman, who publishes Dirty Linen, a magazine about folk and world music, from his home in Towson, also struggles annually to figure out the right mix of premiums, deductibles and co-payments, though he and his wife are the only employees.

"You kind of have to be an accountant, really. It takes us a lot of time each year to figure it out."

Higher deductibles keep premiums lower, but mean higher out-of-pocket costs, particularly for asthma medication for his daughter. "We'll have to see in September, when we get our renewal," whether to change prescription benefits, Hartman said.

The new rules are an effort to improve affordability, in hopes of coaxing more small employers into offering health coverage. Only about 40 percent of employers with up to 50 workers do so currently, the state estimates. As premiums rose much faster than inflation, the number of people covered by small-employer policies in the state dropped to 447,850 last year, from 489,473 in 1998.

"We're beginning to see encouraging signs from the carriers in terms of product flexibility, more choice for consumers and improved affordability," said Stephen J. Salamon, chairman of the Maryland Health Care Commission, who helped push for the new pharmacy rules last fall.

Aetna, for example, is offering an HMO plan with a $500 deductible on brand-name drugs, but no deductible for generic medications. Premiums are about 10 percent cheaper than a similar HMO with some higher co-payments and no deductible for prescriptions.

Kaiser Permanente is in the process of preparing new prescription options and "will have a large array of benefit points and price points," said Thomas A. Curtin Jr., vice president for marketing, sales and business development.

Coventry Health Care, a big Bethesda-based health insurer whose local operations are run by Alfred W. Redmer Jr., the state's former insurance commissioner, has also revved up to challenge CareFirst and MAMSI.

"The Big Two had their market share drop from 94 to 92" percent in the past year, said Maryland Insurance Commissioner R. Stephen Orr. "We've labeled that `The Coventry effect.' "

But dominant carrier CareFirst isn't sure there will be demand for products with lower benefits at lower costs. "Our experience all along is that most customers are looking to upgrade coverage," said spokesman Jeffery W. Valentine. However, Valentine said, CareFirst will continue to consider options if employers show they want them.

In addition to Coventry, other insurers with single-digit market share are making pushes.

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