Chamber, Association Health Plans Worry About Insurance Reform: Is The Gravy Train Grinding To A Halt?

One of the potential casualties of health insurance reform, and of the development of state health insurance exchanges, will be the health plans sponsored by chambers of commerce, trade associations, and professional groups. The inefficiencies, greed, and laziness of these plans and their sponsors make them particularly vulnerable as states experiment with the implementation of electronic marketplaces which might operate more efficiently than the traditional ways of marketing and selling health plans. Some of these groups see the change coming, and are trying to adapt. Most have their heads...in the sand...and pray daily that things will turn out all right. Things probably won't...not for the associations, and not for their members.

I got some interesting feedback from my last entry, in which I wrote about the head of a prominent Chamber of Commerce health plan, who has a conflict of interest because of his participation on the panel crafting regulations for Ohio's health insurance exchange.

I raised the conflict because the Chamber receives about $15 million in commissions and other fees from the insurer whose products the Chamber endorses. My point was that the organization's financial dependency on those fees (which comprise about 75% of its budget) made it unlikely that the Director's decision-making would be focused on the best interests of his organization's members.

I also observed that, rather than freeing the Ohio exchange to become more cost-effective and efficient to help reduce the cost of small group health insurance, his incentive would be to preserve his organization's income stream by assuring that the exchange could NOT operate in a way which might reduce costs (and therefore prices) for exchange participants.

Sure enough, that task force produced a recommendation that premium rates for small businesses both inside and outside the exchanges HAD to be the same. So I asked: if the people who are supposed to be representing the interests of small businesses at such tables have sold out, who WILL speak for small business?

I received some calls and e-mails from people who recognized the guy I was talking about. The correspondents all assured me that he was a splendid fellow, and very smart, and that his FIRST thought was for his members.

But nobody suggested that my key point was wrong: while the Chamber positions itself as a small business advocate, it is completely dependent on its insurer relationship for the vast majority of its income. I'm not an economist, but I understand a few things about the "ecology" of Chamber health plans, and one of them is, you work for who pays you. If members' collective dues are $3 million, and your insurance company is paying you another $15 million of your members' money...you work for your insurer.

And if there's a potential for conflict, you're five times as likely to see things your insurer's way as you are to see them your members' way.

Lots of chambers of commerce, trade and professional associations, and other groups are going to be facing a day of reckoning as health insurance reforms are implemented at the state level. Many of these groups sponsor health plans, largely as revenue-generators for the organizations themselves. There are a lot of tricks. Some permit only agents which are organization members to sell the sponsored plans. Most receive hefty marketing and/or sponsorship fees from their sponsoring insurers, which can add up to hundreds of thousands of dollars. Most such plans are not professionally managed by the organizations' staffs.

The result of all these arrangements is all too often that members are being sold a bill of goods, and are seduced into believing that "their" organizations are providing them with good deals, when in reality, their members are being fleeced.

The Chamber I referenced above keeps all information regarding its health plans a secret (and such secrets are rarely in their members' interests). Nobody really knows how many people participate in the plan, what annual premium volume is, what the Chamber's "take" is...and their lawyers will almost certainly pay me a visit if I use their name. So I'll make my point by telling another story.

A few years ago I did a consulting gig for a pretty good-sized regional business organization. The group had about 4,500 member companies; about 2,400 of them participated in the health plans. But the plans weren't growing, and the leadership wanted to know why, and what they could do to improve the plan's performance.

Discovery was a pain. The insurers (there were three) were not co-operative, nor was the broker who ran the plan. But I've been around a little, so I was able to piece the puzzle together.

In every case, when we added up everything coming out of the health plans... commissions, management fees, overrides, and six-figure "sponsorship payments" to the organization...the administrative cost ratio was up to almost 25% of premium before a claim ever got paid. So total administrative costs were in the 30-31% of premium range.

As a consequence, the cost to members of participating in the association's plans was HIGHER than if they'd signed up directly. So members would join, sign up for the health plan for a year, and come renewal time, their agents would move them out of the association's plans at "street rates," which were lower.

When I presented my report to the organization's Board, they were horrified...for the wrong reasons. They were terrified that their members would find out. But they were so dependent on the income they received from the insurers that they couldn't risk "offending them" by actually negotiating with them. So they shelved the report.

Within three years, membership in that association dropped by 40%...and the income it had been receiving from the insurers disappeared as participation in the health plans declined to almost nothing.

A lot of membership groups are in exactly the same boat. They've been jiving their members in order to get paid by their insurers. But with the pressure on insurers to reduce administration costs, those groups are under a lot of pressure to demonstrate, both to their members and to their insurers, how they add value to the equation. Most of them can't.

So they face a Hobson's choice: either they can WAKE UP and recognize the business they're in, have some unpleasant conversations with their members and their insurers, and rebuild their plans, or they can do nothing, and watch their memberships and related income plummet. And in the association business, doing nothing is almost always the strategic choice. So within 3-5 years, they'll be looking at MUCH smaller memberships and MUCH less revenue, and wondering what happened.

Think about YOUR chamber or association. Which choice do you think THEY'LL make?...