Health Care and Insurance

Strengthened safety net eases strain on insurers: Companies see more manageable contributions under new format to pay ICHIA's losses

August 14, 2006

Indiana's health insurance safety net has pared enrollment and trimmed the industry support it needs by $18 million a year, thanks to reform efforts that started a few years ago.

But M-Plan Inc. CEO Alex Slabosky sees an even greater benefit behind the transformation of the Indiana Comprehensive Health Insurance Association: It allowed his company to remain in business.

In 2003, M-Plan had to pay $5.9 million to help support ICHIA, a big chunk of change for a company that cleared an $8 million profit that year. Last year, the insurer ponied up a much smaller sum, $1.4 million.

"It threatened our very viability," Slabosky said of the higher tab.

Improved management and revamped funding have helped dispel industry-generated acrimony toward ICHIA in recent years and given it firmer financial footing. The program provides insurance for people denied coverage in the commercial market or deemed ineligible for Medicaid or Medicare.

The new funding approach went into effect in January 2005. It called for the state to pay 75 percent of ICHIA's loss, with insurers covering the remaining 25 percent.

Last year, that meant insurers were responsible for $10.2 million, as opposed to more than $28 million in 2004.

Under the old system, insurers divvied up the entire loss and received tax credits in return for their payments. However, insurers could use only so many credits each year. M-Plan, for instance, used only $133,000 in credits the year it paid $5.9 million.

Not-for-profits and insurers who fell short of a profit fared even worse. They couldn't use any.

M-Plan's 2005 bill of $1.4 million probably will shrink a little after final bookkeeping adjustments, said Holly King, the company's director of special projects.

"Our net income over the last few years has improved greatly," Slabosky said.

ICHIA's improvements extend beyond the new funding approach, said attorney Dan Seitz. He credited Doug Stratton for cleaning up ICHIA's finances after coming aboard as executive director in 2002.

Seitz, managing principal of BoseTreacy Associates LLC, represented several insurers in negotiations to revamp ICHIA.

Stratton helped reduce enrollment from 9,500 people his first year to 7,500 by the end of 2005. He moved people eligible for Medicaid into that program, and launched disease management to improve care and trim costs for expensive conditions like hemophilia.

Stratton also brought a "wealth of realworld insurance industry knowledge" to the program and helped insurance industry and political concerns work together.

"He knew all the terminology, how things really worked," Seitz said. "I think his credibility was enormously important."

The program's loss, which fluctuates because of changes in reserve levels, has decreased from a peak of $66 million in 2002.

But that doesn't mean it will someday disappear. ICHIA cares for expensive cases like people suffering from AIDS or cancer, so it will always lose money, said Ann Bingman, the client accounting director for ICHIA's administrator, Dallas-based ACS Inc.

However, ICHIA is still light years ahead of where it was around 2001, when it faced several lawsuits from insurers over their contributions.

"The population was growing rapidly in ICHIA," Seitz said. "The costs ... were not anywhere near covered by the premiums being charged."

Insurers back then were ready to "basically throw up our hands and say if this thing goes under, it goes under, but we can't afford to continue to do this," Seitz said.

A working group of lawmakers, health care providers and insurers took two years to hammer out an agreement that led to the new funding format.

"I would describe it as the perfect storm," Seitz said. "What happened could never have happened if there wasn't all the elements coming together at the exact point in time."
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