A little-known AHCCCS program for small businesses is embarking on a plan to spread the word and the risk as well, but there is some concern that the state is unfairly competing with the private sector.

Several legislators in both parties say Healthcare Group is filling a need by providing health coverage for employees of small companies that otherwise couldn’t afford steadily escalating insurance costs.

But Rep. Russell Pearce, R-Dist. 18, says he has serious concerns about Healthcare Group competing with private insurers. “Several plans indicated they have already lost customers to Healthcare Group even without the marketing effort,” he says.

And Blue Cross and Blue Shield of Arizona is criticizing the expansion plans of Healthcare Group. In a statement, the company says it “fully supports AHCCCS in its mission to provide services to the indigent and disabled,” but adds that Healthcare Group’s “expansion into the commercial market, however, will perpetuate cost shifting, drive up the cost of health insurance and, particularly in rural Arizona, threaten the survival of hospitals and the availability of health insurance.”

Tony Rodgers, director of AHCCCS, the Arizona Health Care Cost Containment System, says his goal is to boost membership in the Healthcare Group program to 100,000 in three years from a current membership of approximately 11,000. Word of mouth alone won’t do it, he says, so he has hired a Tempe marketing and advertising firm to make Healthcare Group a household name among businesses with 50 or fewer workers.

Advertising A ‘Pure Program’

AHCCCS awarded a $250,000 contract to HMI Marketing & Advertising to increase awareness of and membership in Healthcare Group, which was launched in 1986. “It’s not going to be a slick campaign,” says Mr. Rodgers. “There’ll be no TV or radio ads. We’ll do most of the marketing through direct mail to employers and work through organizations like the chamber of commerce, hospitals and provider offices.”

One aspect of the contract that causes some concern is that as Healthcare Group’s membership increases, so does the value of the contract with HMI. Even a strong supporter of Healthcare Group, Sen. Toni Hellon, R-Dist. 26, questions giving a commission to the ad agency.

“I’ve always thought that a bigger pool is better for the price, but if you factor in marketing, you defeat the purpose of letting it grow naturally and keeping the cost down,” Ms. Hellon says “Giving a fee for bringing in membership is a contamination of what is now a pure program.”

Even so, Ms. Hellon says, “Healthcare Group is one of my pet programs and it doesn’t have enough money. Arizona does not have a risk pool and this is as close as we come to one.”

In the current fiscal year, the program received a subsidy of $4 million. Ms. Hellon says initially the appropriation was to have been $3 million, “but I begged for the last million and got it up to $4 million.” Last year the appropriation was $5 million. The subsidy began in fiscal 2000 with $8 million from the tobacco settlement fund, and has decreased by $1 million every year to its current level.

Mr. Rodgers says he wants to remove the need for a state subsidy. By increasing membership to 100,000, the program would draw from a healthier pool of workers and make Healthcare Group self-supporting in three years, he says.

Ms. Hellon says, “There’s nothing wrong with this state subsidizing this program to the tune of $5 million a year to keep people off AHCCCS. It’s money well spent.”

AHCCCS membership has continued to grow since voters in 2000 approved covering more low-wage workers.

Keeping workers off AHCCCS, the state’s version of Medicaid, is what Mr. Rodgers is trying to do. “The problem is that Healthcare Group has a small book of business,” he says. “We’re attracting people in small businesses who are chronically ill and have a lot of medical problems.

“They couldn’t get affordable health care. As the economy improves, more individuals are getting jobs. They’re young people, skilled or semi-skilled. However, many small business employers can’t afford to provide insurance. That creates a liability for the state because these people wind up on AHCCCS.”

Mr. Rodgers says Healthcare Group is the solution to that problem. “If you can get these individuals on premium-based health insurance products they will have a doctor, they will have coverage and AHCCCS will not need to cover them.

“As AHCCCS membership grows, more general fund money will be needed to match federal dollars. The increase in revenue the state is receiving will be chewed up by AHCCCS. It becomes the Pac Man of the budget if we don’t solve this uninsured problem.”

In many cases, employees would have to pay 100 per cent of the premium, which is held down because Healthcare Group offers benefits Mr. Rodgers says “don’t have all the bells and whistles of a comprehensive package.”

They do offer the type of coverage “that younger, healthier low-income employees would need for access to a primary care physician and access to emergency health care.”

As part of the expansion program, Healthcare Group would offer different levels of coverage under more than one plan, Mr. Rodgers says.

Mr. Pearce, chairman of the House Appropriations Committee, says rates paid to providers by AHCCCS and Healthcare Group are lower than those paid by the private sector. “Lost revenue incurred by hospitals will be shifted to purchasers of private insurance, self-pay customers and taxpayers,” he says. He predicts that more people will drop their private insurance “and opt for discounted subsidized insurance.”

Blue Cross and Blue Shield says: “HCG reimburses hospitals at AHCCCS rates, which average at least 12 per cent below the hospitals’ actual cost to provide services.” The company cites a Joint Legislative Budget Committee report from Nov. 15, 2002, which indicates that the state is underpaying hospitals by nearly $90 million each year.

“Hospitals must recover these underpayments to stay in business,” Blue Cross and Blue Shield states. “When AHCCCS underpays hospitals to the tune of $90 million per year, the hospitals must make up the shortfall somewhere. The only source of additional money is patients who have commercial insurance.”

“I have a problem,” Mr. Pearce says, “with state government being in competition at all with the private sector. We probably shouldn’t be in the health care business at all, but we are. We need to be careful as we head down this road so as not to destroy the private sector by competing inappropriately.”

The Mesa lawmaker says one of Arizona’s largest health care insurance plans indicates an expansion of Healthcare Group will result in a 5 per cent increase in premiums for small businesses. A spokeswoman for Blue Cross and Blue Shield agrees that premiums “definitely will increase if expansion goes forward” to deal with the “hardships for hospitals, especially in rural areas.” Regena Frieden, public relations and communications manager for Blue Cross and Blue Shield, says she doesn’t know the amount of a likely increase.

Mr. Pearce recalls that AHCCCS officials late last year “claimed they needed the entire administrative budget in ‘04 to operate Healthcare Group, and yet they were able to put aside at least $250,000 for marketing.” He says neither AHCCCS statutes nor the Legislature “directed AHCCCS to market Healthcare Group, so I do have concerns, serious concerns.”

AHCCCS spokesman Frank Lopez says the agency was
able to use premiums it receives from the two Healthcare Group plans — Mercy Care Health and University Physicians — to pay for the marketing contract.

Mr. Rodgers says an AHCCCS-backed bill, S1166, sponsored by Sen. Robert Cannell, D-Dist. 24, and Sen. Carolyn Allen, R-Dist. 8, would give Healthcare Group flexibility to contract with doctors and others to provide services in areas that do not have a sufficient providers’ network. It would also allow AHCCCS to use up to 6 per cent of the premiums collected for administrative costs instead of seeking an appropriation for those costs.

It also allows an enrollment exemption. “If you have insurance you don’t have to enroll with us,” Mr. Rodgers says. “We require 80 per cent of a company’s employees to participate unless they can show us they have other credible insurance. We’re not interested taking the insured market from insurers. Our interest is to get people insured who are not insured.”

Mr. Rodgers says he would also like to provide coverage for workers who lost their jobs because of foreign competition. He estimates that number to be about 3,000 people.

Jeff Gennaro of Capitol Insurance Brokers in Phoenix and president of the Arizona Association of Health Underwriters, says, “I don’t think it’s Healthcare Group’s place to compete with the private market. That does not serve the public very well.

“We support a private market solution to be funded by insurance carriers, and not have to rely solely on state funding. And we don’t support an expansion of the AHCCCS program to undermine the insurance market. They have tried to fill a need they have felt was there and we don’t want them to step beyond that. Erosion of the private market is not a positive thing.”

Mr. Gennaro says his organization favors the legislative establishment of a risk pool bill to cover “individuals who find themselves unable to secure coverage, don’t have the money to get into an individual plan, or can’t afford HIPAA.” (HIPAA is the acronym for the Health Insurance Portability and Accountability Act of 1996, which guarantees health insurance regardless of pre-existing conditions when workers lose their jobs.)

But Mr. Gennaro says the rates offered are too high. “Access without affordability is not access,” he says.

The risk pool would be funded by a fee charged to carriers to supplement premiums collected, he says.

Private Vs. Public Sector

Sue Gerard, Governor Napolitano’s health agency liaison, says small businesses have been asking the governor for help in finding affordable health insurance. Ms. Gerard says the governor supports plans to expand Healthcare Group. “She’s really excited to move forward on this,” Ms. Gerard says.

Regarding competition with the private sector, Ms. Gerard says private insurers don’t face the same risks that the state does. “When people get sick, we are at risk through AHCCCS,” she says. “A lot of employers pay minimum wages and their employees are just a car accident or an appendicitis away from AHCCCS.”

Mr. Cannell, the senator from Yuma and a pediatrician, is “real supportive of the program — it does answer a need for small businesses and individuals.” He applauds Mr. Rodgers’s plan to bring younger, healthier people into Healthcare Group and to partner with private insurers.

Mr. Rodgers says, “We are more than willing to collaborate with them [private insurers]. Maybe they don’t have the ability we have in Healthcare Group to establish the kind of benefits that we can. We will work with them.”

Mr. Cannell says, “The private market has let us down, especially in rural areas. I would love to see private insurers come into rural areas, but it’s got to be affordable.”

Rep. Steve Huppenthal, R-Dist. 20, says Healthcare Group has been “a phenomenally effective program in terms of providing care for a group that is almost uninsurable.” He’s unsure about the marketing aspect and intends to “wait and see what the competitive thing does and how it affects private insurers.”

Sen. Marsha Arzberger, D-Dist. 25, supports Healthcare Group and favors it becoming self-sustaining. She says small businesses she has contacted in southeastern Arizona have trouble finding insurance even though they do not have employees with serious medical problems. She says they would be welcome additions to the state program.

Rep. Jennifer Burns, R-Dist.25, says it is important for small businesses to have an insurance option. “There may be some things that Healthcare Group could do better but I don’t know what they are,” she says.

Small Businesses Weigh In

Reaction of some small businesses is mixed. Stuart Limb, president and owner of CMC Inc., a Scottsdale-based mining consultant, joined Healthcare Group Jan. 1 after its previous insurer raised the premium substantially. Five of the firm’s eight employees are enrolled in Healthcare Group and Mr. Limb says his company pays 90 per cent of the $1,700 monthly premium.

“So far it’s been fine,” he says, except for a administrative glitch that delayed the issuance of his identification card. Mr. Limb says he learned of Healthcare Group from his insurance broker. David Gregan of Gregan & Associates, a law firm, says he didn’t renew with Healthcare Group this year after three years with the state plan.

“They’re not the worst and they’re not the best,” Mr. Gregan says. “They weren’t keeping up with what was going on with our account,” he says. He blames “administrative screw-ups.”

On the touchy issue of competing with the private sector, Ms. Hellon, a Tucson senator, says the private sector chooses not to offer coverage to people now with Healthcare Group. “Private plans pick and choose — they’re cherry picking,” she says. “They’ve already got the people they want. If it provides competition for them I have no sympathy for them.”

But Blue Cross and Blue Shield states: “AHCCCS announced its intention to expand HCG in a request for proposal (RFP) for branding and marketing services. The RFP claims HCG is trying to attract uninsured groups, but the wording of the RFP indicates the program seeks to compete against commercial insurance carriers. The RFP says the program should be ‘the preferred insurance plan for Arizona small business,’ targeting 20 per cent of the small group market and seeking to delink the program in people’s minds from Medicaid. The proposal also refers to private insurers as ‘competitors.’”

AHCCCS Director Mr. Rodgers says Healthcare Group enrollment has plunged to approximately 11,000 today from 21,109 in 1998, while individual monthly premiums increased to $237 from $108.

“If we don’t market it, make people aware of the program, there’s no way people can learn about it by word of mouth,” he says. “It’s the hidden jewel of the state.” —