A state-run health insurance program for small businesses is hemorrhaging money and doesn’t have the infrastructure in place to collect or analyze the data that could pull the system out of the red ink, administrators from Healthcare Group and the Department of Insurance told a special legislative panel.
“To say it has severe financial trouble is a bit of an understatement,” Rep. Kirk Adams, R-19, said. “It’s in financial meltdown.”
Healthcare Group Arizona provides health insurance for more than 25,000 people across the state, many of whom are unable to find private insurance or are deemed uninsurable by private companies because of pre-existing illnesses.
Designed by state law to be self-sufficient by relying on insurance premiums — much like private insurers — Healthcare Group provided $8 million more in services in the 2005-06 fiscal year than it collected.
For the 2006-07 fiscal year, which ended June 30, Healthcare Group is expected to owe at least $23 million to medical service providers for unpaid services.
And Adams, co-chairman of the Healthcare Group Study Committee, says he has no confidence the program will ever be able to operate as a self-sufficient entity that is not dependent on bailouts from the state.
“The state government has failed to run this program in a way that’s financially viable,” he said. “Why would we bet this would change in the future≠”
And the Department of Insurance seems to agree with Adams’ assessment. Preliminary results from a report that will be finalized in February show Healthcare Group does not collect the data needed to predict health care trends and adjust its premiums accordingly, said Director Christina Urias.
If Healthcare Group was a private insurer, she told the panel Nov. 27, her department would have shut it down.
“In my view, this is a situation…very, very similar to an insolvent insurer operation because it’s relying on subsidies from the Legislature to keep itself going,” Urias said.
Even Kevin Nolan, deputy director of Healthcare Group, told the committee the program may be entering the beginning stages of what is known in the insurance world as a “death spiral,” in which recently increased premium costs drive healthy people from the system, leaving only those with serious illnesses.
But Rep. Steve Farley, D-28, places the blame for the FY07 cost overruns with the Legislature and a medical care organization that is owed the majority of the debt.
“If that is solved, does Healthcare Group get back on good footing≠ Is the crisis over≠” he said.
Farley would like to remove many of the statutory restrictions on Healthcare Group, including prohibitions on marketing the plan and requiring people to be uninsured for at least six months prior to becoming eligible for coverage. Such changes would “unleash” the program and allow it to attract more members and more premiums.
Adams, though, says the state should focus its efforts on ensuring the most critical members of Healthcare Group – those uninsurable by private companies – receive health insurance. He says the program already operates similarly to a high-risk pool by insuring those people. Rather than grow a program he says is obviously failing, Adams proposes formally turning it into a high-risk pool.
“If we do nothing, Healthcare Group will collapse under its own weight,” he said. “It’s the actual structure of Healthcare Group that is the problem.”