Businesses Watching Priority Lawsuit

GRAND RAPIDS — Small businesses and health insurers statewide could feel the impact of a Kent County Circuit Court decision expected later this year.

Priority Health of Grand Rapids is seeking a legal decision from Judge George S. Buth that would allow it to continue requiring businesses with 50 employees or less to pay a portion of their workers’ health care premiums.

State Office of Financial and Insurance Services Commissioner Linda Watters ruled in June 2006 that the requirement is excluded from a 2003 law, leaving open the possibility that small employers could shift the entire cost of Priority Health premiums to their workers.

“After the Blues (Blue Cross Blue Shield), we are the largest small business carrier in the state,” Priority Health attorney Judith Hooyenga said. “With our move into Southeast Michigan upcoming, we’ll have more opportunity to deal with small businesses. There isn’t a carrier besides the Blues that does small businesses out there.”

The disagreement comes just as Priority Health is poised to enter the southeastern Michigan market this year with the purchase of Care Choices from Trinity Health. Priority Health requested the ruling after an insurance agent filed a complaint with OFIS.

Andy Johnston, of the Grand Rapids Area Chamber of Commerce, said he is closely watching the case, as health care costs were identified as a major concern for members in a recent survey.

In a statement to the Business Journal last week, Watters reiterated her opposition to minimum employer contributions, saying that the 2003 Small Group Health Coverage Act spelled out criteria for an insurer to deny coverage.

“There is only one exception under Small Employer Group Reform: the Legislature chose to specifically exempt employers who fail to meet the participation requirements,” Watters said. “The Legislature could have, but did not, provide any other exemptions, including one that would have required employers to contribute a minimum dollar amount or percentage toward the premium cost.

Hooyenga said that asking small employers to put money toward premiums encourages more workers to take insurance, thus spreading risk, suppressing premium prices and discouraging the practices of cherry-picking and dumping. The not-for-profit Priority Health, majority owned by Spectrum Health, continues to sell policies that require minimum employer contributions, Hooyenga said.

Minimum employer contributions are a “longstanding practice among Michigan HMOs and health insurers” and the practice has never before drawn OFIS criticism, according to Priority Health’s court filing. The Michigan Association of Health Plans has filed a court statement supporting Priority Health’s position.

Priority Health and OFIS are expected to present their arguments in front of Buth as early as March.

According to court documents, Priority Health requires small businesses with two to 50 employees to pay 75 percent of the premium for single coverage or 50 percent of the premium for an employee and additional family members.

“This has been a practice of insurance companies forever. It’s kind of a standard thing,” Hooyenga said. “Part of the reason for that is if an employer doesn’t contribute, the cost of insurance is high enough that the only people who are going to buy it are those that really need it. The only people who are going to buy it are the ones that are really sick, because the cost would be too high.”

Covering only the most sick people increases claims and the insurer’s costs, she said. The effect is exaggerated in small groups where claims from just one employee can dramatically skew costs in any given year.

Industry practices contributing to adverse selection were the focus of the 2003 legislation: cherry-picking and dumping. In cherry-picking, insurance companies tailor their products and prices so that only the healthiest patients are covered. In dumping, in Michigan, the sickest patients then must turn for individual coverage to the not-for-profit Blue Cross Blue Shield, which, unlike commercial insurance companies, is required to insure all customers under state statute. The law also requires Blue Cross to consider both low- and high-risk persons when setting premium prices. Blue Cross contends these issues force their premiums up as much as 30 percent higher than commercial carriers, the OFIS ruling states.

Shortly after the law was passed, OFIS’s position on minimum employer contributions surfaced on its Web site, followed by a flurry of letters between Priority Health and OFIS, Hooyenga said.

“Taking this to a simple level, OFIS is saying if a law doesn’t specifically allow you to do something, you can’t do it,” Hooyenga said. “That’s just not true. There’s a lot of things we do in this world that aren’t in statutes. It’s just not accurate.”

The OFIS ruling disputes that, detailing House-Senate negotiations over the bill that show lawmakers removed language that would have explicitly permitted minimum employer contributions. Watters’ ruling argues that other provisions in the law are strong enough to combat cherry-picking and dumping.

Watters contends in the ruling that Priority Health’s minimum contribution requirement is unreasonable and inconsistent, because it is enforced even if the employer and employees have agreed to a different arrangement. She also says the law requires Priority Health to renew the policy unless certain circumstances are met, and the minimum employer contribution is not one of them. And since the law does not require minimum employer contributions for policy renewals, they shouldn’t be required for the initial period of coverage, either, the ruling states.

In fact, employers may be more apt to drop insurance coverage entirely if they cannot afford the minimum contribution to renew, according to the ruling, sending more people onto the Medicaid rolls or into the ranks of the uninsured.