THE TRUTH (as we see it) About the Blues
It is hard to cope with the dynamo known as
Blues. Who is going to tell them what to do when they have about a 30% market
By the way, this article is not being written
because we wonít do business with the Blues or because we see them as the only
carrier with faults. However, over the years weíve gotten tired of hearing the
misconceptions and deceptions about what is being offered and how and why they
are able to make some of the offers that they do. Suffice it to say that knowing
how certain carriers operate can protect an employer from making a choice that
can later make it difficult to move on to another vendor. For instance, knowing
that the Blues continually only provide claim data that is outdated, helps one
prepare for the fact that leaving the carrier will be difficult at best. If you
would like us to provide an analysis of your current situation and an
underwriting evaluation of where you stand, please feel free to contact us at firstname.lastname@example.org
The Question is- Is what you see, what
When receiving a group medical insurance
proposal from the Blues, they can claim to have better discounts than the rest
of the competing offers (be it a self-funded or fully insured plan) and their
pricing to get the business will surely reflect substantial discounts. But now
what? Will you as the client ever actually receive the full value of their
hospital contracts or physician discounts? Most likely not. Will your broker or
consultant advise you of the same? Most likely not. Many broker/consultants
donít have a clue how to experience underwrite and have even less of a clue as
to how these plans really operate.
The Principles of Deception
Letís look at a few things. Back in the
mid-1980ís competition was stiff. There were a lot more insurance carriers.
The TPA business was getting off the ground. HMOs were popping up in peopleís
garages, and PPOs were being added to indemnity plans. Managed Care was booming.
What were the Blues doing? Offering proposals that included "negative
retention!" (For those of you who donít know, retention is the fancy word
for expenses to run an insurance program.) Brokers were actually telling clients
(and competitors quoting against the Blues) that the Blues could operate
programs with less than zero expenses! Youíd think there was enough common
sense in the business to think something fishy was going on, but that is not
always the case. Thereís nothing like a juicy override agreement to override
So, how do they do that?
The answer is, they donít. The Blues were
ingenious enough to know the market was changing and they had the advantage. The
advantage was their relationship with the hospitals and doctors. They had the
original PPO, except nobody knew it other than them.
Letís concentrate on the hospitals. The
Blues provide an annuity to every hospital in their network. They have most
hospitals in their network. Some would say every hospital in the
Letís say the hospital charges are $10,000,
but the cost is really $7,000. Cost plus 5% is $7,350. The Blues pay $7,350 to
the hospital and keep the $2,650 profit. By keeping the difference, but charging
the client as though the claim was for $10,000, the Blues could claim that there
was no retention due to the profit they were taking (but charging as a claim to
the client). The claim report to the client shows the $10,000 in hospital
charges. (By the way, do you think the employee paid coinsurance on $7,350 or
Well, you say, what about PPOs?
Surely things are different there. Well, yes
and no. The hospital accounting still is applicable, but new items have been
added. The Blues have had to give up some of their profits in order to compete
with other PPO plans, but they have still found a way to keep more than most.
Negative retention had to give way and eventually disappeared, once they had to
give up some money and show some PPO discounts.
Access Fees you will not believe
One of their brilliant ideas that most donít
catch is that they charge for access to their PPOs as a claim charge rather than
identifying a per employee fixed monthly fee (we canít recall if they had this
idea first or stole it from First Health/Affordable).
Their charge for accessing the PPO can amount
to as high as 28% of projected net paid claims (including non-PPO claims). On
one case reviewed, that charge amounted to $31.11 per employee per month (and
this was before the pooling and risk charges were added and the whole amount was
divided by the objective loss ratio to make the charge even higher). That is far
higher than the usual $3 to $6 per head that most independent PPOs charge.
But thatís OK, the discounts are
greater with the Blues, arenít they?
Maybe the Blues discounts are greater, but we
will never know. Unlike (most, but not all) other carriers and third party
administration arrangements, the Blues never show their actual discounts.
When we underwrite and review network
performance, we usually like to separate billed charges on an In and Out of
Network basis. Then we remove ineligible charges from the amounts billed In
Network and see what the discounts were compared to actual eligible In Network
charges. This gives a more true picture of the discounts achieved.
The Blues only provide their discounts on
renewal as projected savings. You
never get to see what the real number was! The number initially looks
pretty good at 35% to 42% of projected paid claims. But, if
you look at other networks with good coverage, as a percentage of actual
paid claims, the discounts are usually much higher (50% to 55% of actual
paid claims), with access charges that are far less. Remember, most other
networks report their actual discounts too, so you actually know what you are
getting for your access charge. So, the Blues might have better discounts, but
chances are that you, the employer, may never benefit any more than you would
with another network. In fact, you may end up paying more.
There are other tricks that are used by
companies to overcharge for network access or overstate their discounts. You can
review on this web site another article on that subject in THE TRUTH section of
the web site.
What about that National Network?
Yes, there is a thing called the Blue Card
network that can make sure that you have the opportunity to be in network on a
national basis or cover your employees in other states. Just be aware of a few
things. Those other state plans get the claim first and then process the claims
with the local Blues. It is not a seamless proprietary network. Each Blues plan
wants their piece of that discount pie. The delays can also be a bone of
contention, since the delay can cause duplicate bills. If the Blues charge for
access to the network as a percentage of network savings (as they have been
known to do), how do you know you arenít being charged for savings on
duplicate charges due to delayed payment?
Needless to say, with the discount game being
played, there is lots of room in underwriting to price for the competition. They
may have to give up something in the rates on the front end, but the profits
will most likely be there. The Blues also like to give claim experience that is
six months old as part of their renewal. This makes it especially difficult for
other carriers to underwrite, since the usual standard is to have claims
experience that comes to within at least three months (and preferably two) of
the proposed effective date. This helps the Blues to insure that you will
receive higher than normal quotes from the competition. Underwriters from other
carriers view Blues experience with trepidation, since the discounts are unknown
and the experience is old. This forces the competing underwriter to be
conservative in their assumptions.
The Blues (unfortunately now other carriers
are following this poor example) also wonít provide experience on groups of
less than 150 employees, although they want that experience if the group is over
100 lives and you want them to quote. Makes sense? Youíll also have to cite
federal law and fight with them a bit to get Schedule A information for a group
of less than 150, even though the IRS demands the information for a group of
over 100 employees.
What the Blues have been able to do is
successfully continue to market their market dominance by appealing to those who
fear they may not have the same coverage elsewhere. For employers, the fear of
employee reprisal and discontent is often enough to get them to accept some
pricing tactics that they would not accept from other insurance carriers or
third party administrators. Those brokers who continuously push the Blues are
easily motivated to do so by override agreements to commission arrangements that
Eliot Spitzer has no need to challenge, since they are not in his state. The
weak and continually changing insurance commissioners in