Thursday, July 8, 2010

Getahn Ward: Insurer's exit from TN may put small firms in bind

About 276 employers in Tennessee will have to shop for new insurance carriers as Bluegrass Family Health of Lexington, Ky., pulls out of the state.
Last week, Bluegrass told the state that it would stop issuing or renewing small and large group health coverage statewide at year-end. The company cited difficulty competing with non-HMO plans after Tennessee increased a state tax on the premiums collected by health maintenance organizations.

The tax increase from 2 percent to 5.5 percent — the most allowable under the law — was projected to raise $136 million a year to help defray costs of the state's TennCare program. For the recent first quarter, Bluegrass paid $265,437 under the new premium tax rate after paying $82,078 a year earlier.

Chris Simmons, a broker at Franklin-based VMI/Houchens Insurance, said unlike large carriers such as BlueCross BlueShield of Tennessee, smaller carriers often lack negotiating power to get better discounts from hospitals and doctors. Simmons has five clients that would have to find new carriers after Bluegrass pulls out.

Small employers take hit

A lot of the companies affected by Bluegrass' departure are smaller employers, including those that were drawn to the insurer by discounts offered under a marketing agreement with the National Federation of Independent Business, a trade group that works on behalf of small business interests.

"The main thing is public policy decisions at the state and federal level have a direct impact on business decisions, competition and consumer choice," said Jim Brown, state director with the NFIB.

Joseph Zazzera, a senior financial analyst at independent ratings company A.M. Best, isn't surprised by Bluegrass' decision considering that only about 10 percent of its direct premiums written last year were derived from outside its home state of Kentucky.

"If Bluegrass is looking to improve underwriting results further and protect long-term financial solvency, the company will take whatever corrective measures that the senior management team deems reasonable," he said.

Last year, Bluegrass posted a small loss on an underwriting basis, although its 2009 net income was about $5 million.

Bluegrass has cut four employees here but offered other available jobs to two of those, said Jessica D. Kearney, its compliance director.

Overall, 6,261 people in Tennessee are covered by the insurer, including subscribers and dependents.

Bluegrass is among only a handful of HMOs that operate in the state, with most of the others also participating as TennCare managed care organizations.

Nationwide, after peaking at 80 million in 2000, the number of people covered by HMOs has fallen to 66 million this year as employers seek out more flexible preferred provider organizations.

Under state law, Bluegrass won't be able to re-enter the fully insured small and large group markets until after five years from the date when its last policy ends here.

Getahn Ward covers the business of health care. He can be reached at 615-726-5968 or at

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