Lost in the politics of nHealth’s decision to exit the insurance market is the fate of the small businesses who offered the local startup health insurer’s plans to their employees.
“I don’t know yet what we’re going to do,” said Andrew Farquhar, executive director of Boleman Law Firm in Richmond.
nHealth was founded in Richmond in 2008 with a business model that offered employers high deductible health insurance plans that utilize health savings accounts. It announced on June 2 that its model wouldn’t survive pending regulatory changes that it expects will result from the recently passed federal health care reform legislation.
As it now works to wind down its operations by year’s end, nHealth policy holders must search for alternative plans for 2011 and many worry about how increased premiums will effect their employees and the bottom line.
Boleman Law Firm is waiting for quotes on new coverage plans from other carriers to provide health care for its 15 attorneys and support staff at offices here and in Hampton Roads. Farquhar said he doesn’t expect it will be pretty.
“What I’m anticipating is they will be far more expensive than we are currently paying,” Farquhar said. “That’s almost a given.”
Richmond-based Acorn Sign Graphics offers its 37 local employees health care coverage through nHealth. It pays for 100 percent of its employees premiums, said co-owner Steve Gillespie.
Gillespie said the company is looking into alternative plans from some of the major carriers but it is preparing for cost increases and how to handle them.
“If [major carriers] are consistent with their previous proposals, we will probably no longer be able to provide 100 percent coverage for our associates, as we do now,” Farquhar said.
Becky Pollard, president of Business Solutions, a Roanoke-based insurance broker that sells nHealth plans, said her customers that used nHealth were paying 30 to 50 percent lower rates than with their previous insurer.
“This is a tremendous hit to people financially,” said Pollard. “My groups are just absolutely devastated.”
“They’re not upset with nHealth. Upset with the fact that we’ve lost a choice of a health care carrier in Virginia; and one with very competitive rates.”
Though there are many critics of the high deductible plans and HSAs, Gillespie and Farquhar said employees eventually saw the benefits. The plans require employees to spend money they’ve set aside in special accounts for lower-cost care, such as doctor’s visits. nHealth covers more expensive care after the deductible has been met.
“Like others I, too, wondered how hourly [employees] would respond to the higher deductible plans and HSA’s,” Gillespie said. “At first it did intimidate them.”
Farquhar said traditional health care plans have left many workers disengaged from the entire health care process and that there was a learning curve to re-engage employees under nHealth’s plans.
“People have to learn how much certain types of care really cost,” Farquhar said. With a high deductible plan there is incentive to learn.”
What resulted was employees embracing the lower premiums that such plans afford, along with the ability to put pre-tax money into HSAs to cover medical costs not covered.
“Virtually all [employees] have opened these accounts and where we could not get them to set aside money in their simple IRA’s, which we also offer, virtually all have deductions going to the HSA’s.” Gillespie said.
And nHealth’s numbers show the plans may have been catching on, albeit slowly.
According to records filed by nHealth with the National Association of Insurance Commissioners, enrollment in its plans grew from 101 in 2008 to 1,488 in 2009.
Acorn and Boleman haven’t given up on the idea of a high deductible plan with a HSA. But they wonder if and when similar plans will be offered from someone else in the insurance industry.
“We believed in our firm that this is the right approach,” Farquhar said.
Michael Schwartz is a BizSense reporter. Please send news tips to Michael@richmondbizsense.com.
Thanks for pointing out the part of this story that really matters most – businesses who freely chose this plan and whose employees LIKED it will not have that choice when nHealth is gone, unless other similar companies provide similar plans.
The irony is that nHealth’s decision proves that the PPAC’s (aka Healthcare reform Act) focus on loss ratios as a means of insuring that subscribers get “fair value” totally overlooks the fact that different forms of insurance should operate according to different ratios. if nHealth provided coverage at 1/2 the average premium of conventional plans, why should it have to pay out the same percentage of premiums as those plans. Didn’t the subscribers already save 50% on their premiums? Is this not better than imposing an arbitrary “one size fits all” loss ratio, especially if it forces (or discourages) innovators out of business?
The argument has often been made (and just as often easily defeated) that the individual mandate to purchase health insurance is “just like mandatory auto insurance.’ That is of course, a specious and flippant response from pundits and politicians who don’t seem to understand the differences between fundamental rights and individual liberties, on the one hand and privileges (e.g driving), on the other. But I actually wish that health insurance was more like car insurance. We would have nationwide competition, premiums could be related more directly to risk-related behavior (even if coverage of pre-existing conditions was mandatory), and subscribers would have more choices – choice of deductibles, maximum coverage limits (and accordingly, lower premiums), and other parameters would allow insurers to tailor their coverage to the needs and desires of their customers. The “one size fits all” approach never really fits anyone well, regardless of whether it’s health insurance or underwear.
Tom,
You strike an important note above. One key component that the loss ratio (80%) requirement does not take into account, are the dollars that the employers above are contributing to their employee’s HSA accounts. Yes, premium savings for these types of plans are in the 30-50% range and what is the value of that savings? I would say it is 100% value for their dollar, since it is going to an account that is used to pay for healthcare costs. So what would you rather have, a $500 monthly premium that you get a 80% return on or a $250 premium that you get a 70% return on and bank the other $250 per month in an HSA that you WILL eventually (HSA dollars roll over) use to pay directly for healthcare expenses on a pre-tax basis? Easy choice for me.
From the policy holder’s standpoint, the tax benefit alone of annual HSA contributions makes up for the 30% that is lost to the insurance company’s overhead and profit.
Michael, thanks for this follow-up revelation that Virginia small business had an alternative insurance option providing the same or better insurance at savings of 40% or more from Anthem and Southern Health, or other “big” insurance company plans – a savings gap which has already increased with the carrier’s announced cost increases for 2011. Not clear in previous discussions about Health Savings Accounts and High Deductibles was that in our plan (this was in the control of the insured company) the employees did not pay more “net” for this insurance or have any increased risk.
You are also correct that we are not upset with nHealth. We are deeply committed to seeing that all our associates have access to whatever medical care they and their families need without seeing their incomes decrease annually to get it. We are deeply upset with the new Health Bill which each day’s revelation of new features seems increasingly likely to result in the opposite – more expense for them and their companies and fewer choices and options. In fact, the bill could mean the end of small business employer plans. As we understand the economics, we could choose to pay the $3000 per employee penalty and cease to provide Health insurance with a savings of about $50,000 a year over what we expect will be Anthem’s and Southern Health’s proposals to replace our current coverage – an increase of about $70,000 over what we were paying with nHealth.
In summary, the provisions of this bill directed at managing the Health Industry are so misguided we pray they will be repealed before they do extensive damage to our State economy, and to our less wealthy citizens who will be the victims. Senators Warner and Webb and Congressmen — retain the provisions requiring all citizens be provided Health Care but repeal all the language purporting to “manage” the insurance industry and put in some provisions which will truly do that. There are provisions which would employ the marketplace not the government in solving our cost issues, to wit. some examples most of us who have purchased from this industry for years already know–
1. repeal the insurance industry exemption from anti-trust legislation;
2. rewrite the laws which allow Hospitals to build monopolies (note that 90% of the increases in Health Care costs are coming from Hospitals, not Doctor’s or Professional fees!);
3. Forbid the hospitals from purchasing and owning medical practices they then force to use only their overpriced services (a rampant trend in Richmond) which will be as destructive as banks in investment banking;
4. Allow small businesses to form cooperative groups or, better, forbid insurance companies from setting different rates for the same profile based on the size of the group which would force insurance companies to compete on service and administrative efficiency;
5. ETC.
Mr. Warner and Mr. Webb, Obama in his joint session outlined what he hoped to see in the Health legislation which would help control and reduce cost. Some of those points are listed above. With the exception of insurance for all, none of those ideas were implemented in this legislation. We know you did not read or understand what was in this bill. You can now serve Virginia best by standing up and repudiating this misguided legislation without repudiating Obama’s vision. Not to do so risks your political future and endangers the well-being of a great many “average, hard-working Virginians.”
Michael, since getting the Health Bill repealed may be the single most important thing Va business leaders could do for our employees’ well-being as well as our companies’ financial strength, please tell your readers about H.R. 5424 which would fully repeal the ,,,health care bill and replace it with the Common Sense Health Care Reform and Affordability Act (H.R. 4038).
I think the follow up articles have shown that healthcare reform had nothing to do with the down fall of nHealth. No insurance company can provide coverage to a group at a price that is less than the premium it takes in. That appears to be what happened here. Like the fellow that drove to Florida and purchased watermelons for $5.00 each and brought them back to Virginia and sold them for $3.00, you can’t “make it up in volume.”
A couple of other suggestions for healthcare improvement;
1. Stop pharmaceutical companies from advertising. Since this practice began, drug costs have gone thru the roof and Physicians cannot prescribe the lowest cost, most effective drugs. Because the patient has been bombarded with adds that tell of each new wonder drug.
2. Support and provide more 24 treatment center to reduce ER costs for non-emergency problems.