Competition Growing For Small
Business Health Insurance

May 29, 2007
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LANSING — Competition in Michigan’s health insurance market for employers of two to 50 people is stronger now than in 2003 when the state law was altered, according to a May report from the state insurance commissioner.

Seven insurance carriers claimed 75.5 percent of the market in 2006, up from five in 80 percent of the market before the law went into effect in 2004, according to the report from Linda Watters, commissioner of the Office of Financial and Insurance Services. However, the number of carriers in the market dropped slightly from 43 to 41.

“The commissioner finds there is a reasonable degree of competition in the small employer health market on a statewide basis,” states the report, the first annual review required under the legislation. “… There appears to be no lack of carriers operating in the small employer group market, and many, many benefit options from which to choose.”

But Richard Murdock, executive director of the Michigan Association of Health Plans, said he is concerned by a 20.4 percent reduction in the number of member months shared by those top five carriers. Collectively, the top five sold 10.9 million member months in 2003 compared to 8.7 million in 2006, according to the report.

“I can only think this is suggesting that small businesses are dropping coverage,” Murdock said. “We all assumed one of the prime objectives of small market reform was to increase access to affordable health care options.”

Blue Cross Blue Shield held 59 percent of the market in 2003, in terms of member months. That dropped to 42.8 percent by 2006, according to the report. Blue Care Network, the BCBS HMO, increased market share from 7.2 percent in 2003 to 8.8 percent in 2006.

Priority Health is solidly in second place. The Spectrum Health-owned health plan held an 8.2 percent market share in 2003, and that increased to 11.5 percent in 2006. Earlier this year, Priority Health bought the Detroit-area Care Choices HMO and acquired its 9.9 percent share of the small group market, bringing its small group market share to 21.4 percent, according to the commissioner’s report.

The small group reform law set rate bands and delineated case characteristics that companies can use in setting premium rates in an attempt to bring order to the market. In particular was concern about “cherry-picking,” in which some companies insure only the most healthy employees, leaving BCBS, which by law must take everyone, to accept the increased risk and cost for less-healthy workers.

“More choices in health care from more carriers doesn’t mean it’s necessarily going to be any less expensive,” said Scott Lyon, vice president of small business services for the Small Business Association of Michigan, which works with BCBS to offer coverage to 4,000 members. “The more competition there is, the more choices that the small groups have. Whether premium rates follow the choices is a secondary thing.”

The report indicates that some index premium rate increases have at least slowed since the law was implemented.

“Overall rates charged to small employer groups have continued to rise, but not by the same level of increase seen in earlier years,” the report states. “It is not possible to state with certainty whether the implementation of Chapter 37 impacted this change, since the reduction in the level of rate increases has been a national trend over this same period.”

“I think it was premature to draw many conclusions, and it needs to be placed in the context of all health care markets,” said Murdock, noting that the legislation demanded Watters to issue a report in mid-May.

Andy Johnston, advocate for the Grand Rapids Area Chamber of Commerce, said the chamber supported the small group reform measures, and he thinks the report shows they are working.

“It’s actually going to bring long-term stability to the small group market and ultimately allow for true competition in the small group market,” Johnston said. “Going forward, obviously we will want to see expanded flexibility and even further competition and choice in the market place. That is what small businesses need to continue to offer this important employee benefit.”

Lyon echoed Johnston’s comment.

“Small group market reform was just one step,” Lyon said. “There’s a whole lot more that needs to happen with health insurance — not just small group, but across the board — if it’s going to continue to be available and affordable for businesses of all sizes.”

2006 Top Five Small Group Carriers


      Market Share

Blue Cross Blue Shield Of Michigan


Priority Health


Care Choices HMO


Blue Care Network


Principal Life Insurance Co.


Source: Michigan Office of Financial and Insurance Services

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