A major source of health insurance for people who work for themselves has all but disappeared, casting thousands of contractors, freelancers and solo practitioners into the ranks of the uninsured with little hope of obtaining new coverage.
Health plans offered by professional associations were once safe havens for millions of people who couldn't obtain coverage anywhere else. But, as medical costs have soared, groups representing professions as varied as law and golf have been forced to stop offering the benefit or been dropped by insurers.
More than 8,000 California Realtors and their families could be next if Blue Shield of California succeeds with its plan to cancel their association health coverage.
"It's a real stab in the heart," said Marcy Garber, 62, a Los Angeles real estate agent whose history of breast cancer makes her an almost-certain reject if she seeks similar coverage on her own.
While no one tracks association coverage to know how many plans have disappeared, the experience of Marsh Affinity Services is telling. A decade ago, Marsh, which brokers and administers such plans, had 142 such clients. Today, all but three have closed.
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Less than a quarter of 1,020 professional and small-business associations surveyed in February offer medical coverage, even though a majority of the groups said they would like to. The American Society of Association Executives, which commissioned the survey, views the issue as a crisis.
In its heyday, association health coverage was so popular brokers touted it as a membership recruiting tool for professional organizations.
"The association business used to be a huge part of the group health insurance business," said Robert Laszewski, a Washington-based health policy consultant and former insurance executive. "Now it's like the buggy and whip business — almost entirely gone."
Insurance carriers began pulling out of association markets about 10 years ago amid mandates requiring the groups — like employers — to offer coverage to all members who wanted to buy it, regardless of pre-existing conditions. Unlike employers, however, who typically pick up the lion's share of premiums for employees, most associations do not share in the costs. Instead, they arrange for their members to buy coverage at group, rather than individual, rates.
In today's marketplace, that's almost always a better deal for older members and often the only option for people with pre-existing conditions. But insurers are eager to sell individual policies to the young and healthy for as little as $100 a month, scooping the cream off the risk pool. That leaves higher-risk older and sicker people to the group market, a phenomenon known as adverse selection.
As healthy members leave an association health plan, the concentration of members with higher-than-average medical costs increases. That forces the underwriter — usually the insurer but sometimes the association — to raise premiums. A "death spiral" sets in, when medical costs exceed the plan's ability to raise premiums to cover them.
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"The problem with associations is they go into a death spiral because they get the worst risk," said Alan Fox, vice president of plan design for the American Psychological Association Insurance Trust, which covered thousands of psychologists and their families for 35 years before closing its health plan in 1999.
The list of casualties also includes health plans once sponsored by the American Bar Association, which still hopes to resurrect the benefit it dropped last year, and the California Bar Association, which lost its coverage when its insurer pulled out in the early 1990s.
Before the Professional Golfers' Association's health plan ran into the rough, the group had extended coverage to about 1,000 duffers. But the plan was discontinued in 1996 as medical costs rose and younger, healthier members bought coverage on their own at lower rates.
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"If you can get cheaper coverage through the individual market, that's what you do," said Mila Kofman, an associate research professor at Georgetown University's Health Policy Institute.
But not everybody can buy an individual plan. In many states, insurers are allowed to reject applicants for individual policies for any medical reason, including common conditions such as asthma and varicose veins. As a result, many people who lose association coverage are effectively uninsurable.
Insurance options of last resort — COBRA-conversion coverage, named after the federal law that created it, and publicly subsidized high-risk pools — are not an option for everybody because the coverage is insufficient or unaffordable, or both.
"If they don't have an opportunity to go to another group and have to go into the individual market, it's a real problem," said Kansas Insurance Commissioner Sandy Praeger, president-elect of the National Association of Insurance Commissioners.
That's what worries Garber, the Los Angeles Realtor who is reeling from the news that Blue Shield plans to cancel the California Association of Realtors' health plan at the end of May. Garber doesn't know what she will do if she loses her coverage, which costs her $596 a month.
"I'm not what I would call every insurers' delight," she said. "I have to be in a group plan or I'm not going to have insurance. It never dawned on me I'd have any problem with this insurance."
The Realtors' association and its broker, RealCare Insurance Marketing Inc., contend Blue Shield can't cancel the plan.
"It is against the law for Blue Shield to cherry-pick, i.e., to try to keep only the healthy employees, while cutting off those who need their health insurance most," RealCare says in a lawsuit.
Blue Shield says the law allows it to pull the plug if the association violates the terms of its contract. And, the company says, that's what happened when the group failed to enroll 75 percent of certain members in the health plan, as the contract requires.
But the association and its broker accuse the company of inventing a new way to calculate the enrollment in order to create a pretext for dumping them and their medical bills. They say that enrollment has been close to 99 percent for years, and Blue Shield never made an issue of it before.
"What's different about today?" said Debra Ferrier, the Realtors' association assistant general counsel. "I believe they probably looked at the plan, probably saw it wasn't very profitable, and they think they found a reason to cancel it. We disagree that they found a reason."
A hearing on the dispute is set for April 6 in Los Angeles, and state regulators say they are looking into it.
Blue Shield spokesman David Seldin said the company noticed the purported enrollment problem only recently. He declined to discuss the plan's finances, saying "it was not relevant to our decision, which was simply and completely about the fact that they were not in compliance with their contractual obligations."
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