Profiles in Coverage: West Virginia Small Business Plan
Overview
In mid-March of 2004, West Virginia, an SCI demonstration grantee, passed key legislation (S.B. 143) intended to help uninsured small businesses provide coverage for their employees. The new law created a private/public partnership between the West Virginia Public Employees Insurance Agency (PEIA) and insurance companies that choose to offer the plan. West Virginia’s Small Business Plan allows participating carriers to access PEIA’s reimbursement rates, enabling the new small business coverage cost to be reduced significantly.
The design of the Small Business Plan includes coverage in both primary care and major medical at a cost that is 20-25 percent lower than the retail rates. The state hopes that it will expand of the number of covered working persons and their families at no cost or risk to the state.
SCI recently talked with Sonia Chambers, chair of the West Virginia Health Care Authority, and Sally Richardson, executive director of the Institute for Health Policy Research at West Virginia University, about the Small Business Plan.
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1. Why did West Virginia move forward on this project? What was the rationale behind the development of the Small Business Plan?
West Virginia had a governor who was a strong proponent of improving the health care system and expanding health care access and insurance to the uninsured population (about 20 percent of non-elderly adults in 2002). He created a health cabinet (the Health Umbrella Group) made up of the agencies that paid for, provided, or regulated the state’s health care services, and met with this group monthly. One of its early actions was to support the WV Health Care Authority (HCA) and the WVU Institute for Health Policy Research in an application for a Health Resources and Services Administration (HRSA) State Planning Grant (SPG), received in September 2002.
As the SPG project progressed, one option discussed was legislation that had been passed in the 1990s, but was never fully implemented. It allowed the Public Employees Insurance Agency program (PEIA) to cover local government organizations and small businesses. That discussion led to the recommendation that the PEIA partner with the Institute and apply for a Robert Wood Johnson Foundation State Coverage Initiatives (SCI) demonstration grant to develop and implement the small business provisions of the legislation. A three-year grant was awarded in 2003.
2. What is the Public Employees Insurance Agency?
PEIA is the state agency that provides health insurance to public employees in state agencies, state universities and colleges, as well as county boards of education. It is the largest self-insured program in the state. It has three risk pools—one that includes all active employees of the organizations named above (62,769 policyholders), a second that provides coverage to local county and municipal employees (10,276 policyholders), and a third that provides Medicare supplemental insurance to all retired employees who participated in PEIA prior to their retirement (31,335 policyholders).
PEIA contracts with a third-party administrator to handle the payment of claims, the certification of providers, the management of costs, and other administrative insuring functions. Annual losses from the retired employees’ pool are also included in the active employees’ pools. Recently, the Legislature has also required that the premium share paid by employees be increased incrementally to 20 percent.
3. Your original plan was to allow small employers to join West Virginia’s Public Employees Insurance Agency pool. Why did the strategy change?
The original strategy was to allow small businesses to participate in the local agency pool. That strategy changed when local county and municipal officials became concerned that the inclusion of small businesses in their pool might cause increased costs to their budgets and employee cost sharing. Rather than lose the opportunity to develop this concept, the Legislature chose to allow private market insurers to participate using the PEIA’s provider payment rates.
4. The PEIA has statutory authority to set provider rates for its plans. How are these provider rates set?
PEIA’s Finance Board, created by legislation, has the authority to set provider payment rates, employee/state agency premiums, and cost- sharing levels. Because PEIA is self-funded, it is able to set a specific fee schedule for participating providers. Provider reimbursement rates are updated annually based on projections of health sector cost increases.
Historically, PEIA’s provider reimbursement rates have always been lower than what is paid in the commercial market. Currently PEIA provider reimbursement rates are approximately 20 – 25 percent lower than private market rates.
The principle behind the Finance Board’s authority is to establish rates that both cover the providers’ costs and provide a modest return on equity for providers. Because PEIA is such a large share of health care payments in every county, providers are generally willing to accept its determination. Their recourse is through the Legislature if they believe the Board’s recommended increase is insufficient, since the Legislature covers the state agency share in its annual budget.
5. How many carriers participate in providing coverage to PEIA members? How many are participating in the Small Business Plan? Are there any expectations that other carriers will want to participate in the Plan?
Accordia National Insurance provides services as the third-party administrator for PEIA.
Currently Mountain State Blue Cross/Blue Shield (the state’s largest private market insurer) is offering the Small Business Plan. It is assumed that as the Plan gains in acceptance and use, other insurers in the state will apply to become participating carriers. Mountain State, however, does not provide coverage to PEIA members.
6. Where did you find your primary political support? What were the major concerns for critical stakeholders? How did you address them? What kind of political and financial commitment did you need to make in order for the program to succeed?
The primary political support came from the governor, from providers who were persuaded that the proposal would reduce the ranks of the uninsured, and from the business and community services advocates who were concerned that their constituencies would sooner or later have increased health care costs based on a growing number of small businesses who were not offering health insurance to their employees.
The major commitment of the state was to enable the PEIA provider rates —which reduced costs by 20 to 25 percent—to be the rate of payment for the product. It also required that participating insurers reduce their administrative margin to further lower the product cost, and, finally, that individual providers be allowed to proactively opt out of the program.
7. What is the current enrollment in the program (number of businesses and/or covered lives)? What do you anticipate the enrollment to be at the end of this year and in the long term?
Currently there are almost 500 individuals enrolled in the program, representing approximately 100 small businesses. It should be noted that the bulk of this enrollment occurred prior to the start of the media campaign in early August. It was primarily the result of a series of local workshops for area insurance agents and word of mouth.
The enrollment is expected to double by the end of 2005, with its growth slowing in subsequent years.
8. The Small Business Plan legislation does not direct the state to design, sell, or administer health insurance policies. What does the law specifically do?
The legislation stipulates:
- All carriers with a network of health care providers may offer this product to small businesses that have not had health benefit coverage for their employees during the preceding 12 months.
- Employers must pay at least 50 percent of the premium cost.
- Carriers will offer the plan through their own network and will pay for services at the rates reimbursed to providers by PEIA.
- Providers will be allowed to opt out of participation in the small business plan by filing a notice of refusal with the PEIA.
- Providers will accept PEIA payment rates as payment in full and not balance bill.
- Carriers will use a minimum anticipated loss ratio of 77 percent to be eligible to ask for a rate increase and products offered will not be subject to a premium tax.
- Carriers have no responsibility to obtain additional health care providers for an adequate health network if one does not already exist.
- The Plan will be governed under regulations promulgated by the insurance commissioner, with advice from a policy advisory committee.
9. How did you get carriers in the state to participate? Are there requirements that a carrier must meet to be eligible to participate?
Any licensed carrier can offer this insurance product. Mountain State was represented on the policy advisory committee during the development of the product (along with other insurers) and indicated early on that it would offer the product.
10. Is the PEIA or the Insurance Department approving the premium rates in this program to assure that provider discounts are passed along to consumers?
The Insurance Department approves the premium rates of this product and bases them on the carrier costs, the provisions of the law, and counsel from a statutorily required policy advisory council, which includes stakeholders and members of the public.
11. Enrolling small businesses in coverage initiatives has been a challenge for many states. The Small Business Plan covers employer groups with 2–50 employees. Are there any features in this program that address the general challenge of enrolling small businesses?
One of the unique features of the Plan is that it is, in fact, a market-based product governed by market rules. Through a private/public partnership, it is able to provide a small group product that benefits from the payment provisions of the state’s largest employers. It is a “marriage” that allows the small business employers who purchase it to share the same cost advantage that size provides for the state’s self-insured pool.
12. States pursue different mechanisms to lower premium costs. Was the benefit package for the Plan substantially reduced to make it more affordable?
Reduced benefits are not a characteristic of this program. The goal was to use lower provider payments and administrative costs to reduce the cost of a standard market product for small businesses and their employees.
13. Were insurance brokers involved in the development of this program? Do they receive a commission for selling the plan? Have the brokers embraced this program?
Part of the reduction in the insurers’ administrative costs is a reduced commission to insurance agents. The PEIA created a Policy Advisory Council (PAC) that included representatives of constituencies that would be affected by the proposed program, including an insurance broker and agent.
In addition, prior to the program’s January 1, 2005, start date, staff conducted a series of six training sessions around the state for agents and brokers of the participating insurer. These individuals understood well that this program was to provide health insurance to those who were currently unable to afford health care insurance. The majority viewed it as an additional product that fills a need and has been supportive from the beginning.
14. How are you evaluating the effectiveness of the plan?
An evaluation plan was part of the original grant application and includes determining how many and why employers buy the product, the satisfaction of those that use it, documentation of changes in employees’ patterns of health care use and expenditures, the impact of pent up demand, and an assessment of the increases over time in the numbers of insured small business employees and the reductions, if any, in uncompensated care costs to the state’s providers.
15. What challenges do you anticipate in terms of maintaining the sustainability of the program?
This product has always been conceived as one that could and would become a model of how the public sector and the private market can join together in providing an insurance product that better meets the cost requirements of small business employers, but has the capacity to pay for itself. We firmly believe that this product will grow in appeal and become as self-sustaining as any other private market product.
16. What is the regulatory environment that the Small Business Plan operates in?
In general, the state’s insurance rules are conservative and based on standards of the National Association of Insurance Commissioners. In addition, we have mandated benefit requirements that are appropriate for the health concerns within the state, most of which are adopted by the majority of states. The small group products are subject to the guaranteed issue requirements and specific requirements for determining new business rates and renewal rates.
17. Are enrollees in the Small Business Plan rated separately from the rest of the small group market in West Virginia? Does each carrier rate within its own book of business?
Enrollees in the Small Business Plan are rated in the same way that the insurer rates all other employers (and their enrollees) that are purchasing this insurer’s standard high-deductible insurance product. The difference for Small Business Plan employers is that the product’s underlying cost structure has been significantly reduced by lower provider payment rates and a reduction in the insurer’s administrative costs.
Renewal rates will be based primarily on the individual employer group’s experience within the lowered cost structure framework.
18. The law allows providers to opt out of the networks of those carriers offering the Small Business Plan. How did you get providers to participate? What has been carrier experience with maintaining adequate provider networks?
The law included the method for the provider opt-out. It is conducted annually by PEIA and is a letter sent to PEIA providers, who are essentially part of the same provider network for any carrier in the state, informing them of the law’s provision and the providers’ right to opt out. It requires that providers notify PEIA if they desire to opt out within a month’s timeframe. Since PEIA is the state’s largest self-funded insurer, covering individuals in every county in the state, its provider network extends to most of the state’s providers.
The first opt out was conducted in mid 2004 and 72 out of 13,000 providers notified by PEIA elected to opt out. The second notification was conducted in mid-2005 and 98 out of 18,000 providers elected to opt out. Neither number is considered significant given the numbers of providers servicing PEIA members throughout the state.
Carriers’ individual provider networks overlap, for the most part, with the in-state PEIA network of providers. Any differences are likely to be in contracts with out-of-state providers located close to the state’s borders. The carriers’ discounts with these out-of-state providers are passed along in the cost of the Small Business Plan product and are not a major factor in increasing its cost.
Since the Small Business Plan is a standard product of the carrier (with previously described reduced costs), its cost reduction methods are a part of the product, including requirements related to using in-network providers and disincentives for not doing so. Any additional administrative costs related to networks would be negligible since the delivery systems in this state are, with one or two exceptions, PPOs and not HMOs.
19. Do you have any concerns that the Small Business Plan will be more attractive to high-risk individuals?
Premiums for the Small Business Plan will be governed in the same way that all other products in the marketplace are governed—by the requirements and documentation contained in the Insurance Commission small business market regulations. There is no greater risk of this product becoming a high-risk pool than any other small-business market product.
The carrier has reported that based on underwriting review, the risk of this pool is at least as good as the pool for their other small employers.
20. Since West Virginia is a predominantly rural state, it relies upon a strong network of community health centers and other safety net providers. How did you design the program to address this challenge?
Community Health Centers, Critical Access Hospitals, and the acute care safety net providers in the state were some of the program’s strong supporters. They understood that a successful insurance program that could better serve the financial circumstances of rural West Virginia’s small employers could reduce their costs of uncompensated care, and also measurably improve the ability of their friends and neighbors (their communities’ uninsured small business employees) to access needed primary and preventive care before it escalated into more acute care needs. This is one of the evaluation outcomes of the product that will be fully explored.
21. Your marketing campaign was rolled out in July 2005. Has this outreach had an impact on enrollment?
The mass media portion of the marketing campaign has had a marked impact on the numbers of inquiries received on the Small Business Plan’s Web site, as well as the number of phone inquiries received at the toll-free consumer inquiry division of the WV Insurance Commission. The specific numbers are: for the period between December 2004 and June 26, 2005—1,234 Web hits and 202 calls; for the period between June 26, 2005, and September 22, 2005—3,810 Web hits and 356 calls.
All inquiries are forwarded to agents of the participating carrier. The benefits and costs of the coverage plan and the selling ability of the agent determine actual sales.
Inquiries that go directly to local agents or to the Mountain State Blue Cross and Blue Shield office are not tracked.
22. What was unique to your marketing strategy that helped get the message out?
The overall marketing campaign is designed to drive inquiries to agents representing the carrier(s) that elect to offer the coverage. The message is to let small-business owners know that a new, lower cost option is available and that local agents are the source of further information.
The campaign has several phases:
1. Education of the local agents, generating an enthusiasm among them to sell the Plan, and providing them the Plan’s professionally designed sales materials. This was done through a series of statewide agent workshops held in November 2004, which featured a national expert on the small business market and provided Continuing Education credits to meet their certification requirements. Agents continue to receive a periodic newsletter about the Small Business Plan.
2. Launch of a statewide multi-media blitz on June 25, which runs for six weeks to six months, depending on the vehicle. Radio, billboard, TV, collegiate sports sponsorships, Web ads and print ads are carrying the message that the Small Business Plan is “Open for Business,” with more affordable premiums. The Governor of West Virginia is the advertising spokesperson. It is this phase that is pushing a marked increase in the numbers of inquiries.
3. Emphasize all avenues of “free” promotion via print articles broadcast interviews, promos on related Web sites, and presentations to civic and business organizations. Paid media will be more limited during this phase, likely concentrating on collegiate sports sponsorships.
4. Prepare local insurance agents for the conclusion of grant-funded promotions. They will understand the future direction and management of the Plan as well as receive adequate sales materials to use with potential clients.
The uniqueness of the Small Business Plan marketing campaign is its flow, beginning with creating understanding and support at the local agents levels, and then building to create an awareness among the statewide small-business community with the mass media campaign and the promotional activities. The marketing concludes by preparing local agents to take over the sales of the Small Business Plan with the same commitment as other health insurance coverage.
