Reform Spurs New Vision, Dental and Gap Insurance Products from QualChoice

QualChoice of Little Rock will begin offering dental, vision and short-term gap health insurance this spring, which is one of several changes it’s making in response to national health care reform.

President and CEO Michael Stock said QualChoice is adding the lines because profits are limited under its large group and small and individual health insurance lines.

Under the Affordable Care Act, also known as Obamacare, health insurance companies must spend at least 85 percent of the premium they collect on health care for customers in large group policies and 80 percent on small group and individual policies. (A small group policy is up to 100 employees.) If the health insurance company spends less on health care costs under those plans, the difference could be refunded to policyholders.

Stock said it’s difficult to operate under the medical loss ratios because of the limit placed on how much money can be kept to cover administrative expenses.

Before the law took effect in 2011, if the large group line suffered a loss, then the profits from the small group line could subsidize those. But not anymore.

“Every product has to be profitable and hit the loss ratios,” Stock said.

To add more revenue, QualChoice started selling Medicare supplemental insurance coverage and life insurance products in 2011.

To trim administrative expenses, in the summer of 2011 QualChoice reduced the amount of commission it paid on first-year sales for individual lines from 15 percent to 8 percent.

Company revenue for the first three quarters of 2012 was $110.5 million, a slight decline from $110.9 million for the same period in 2011, according to its filing with the Arkansas Insurance Department.

However, it reported a loss of $3.3 million, compared to a $22,589 profit for the same period in 2011. And by the end of 2011, QualChoice had a loss of $4.6 million. The company had a 2010 profit of $2 million.

Stock said “a lot of the loss” in 2011 was tied to the implementation costs associated with health care reform. The company also had high-cost claims that year.

The 2012 loss through Sept. 30 stemmed from “high claimants,” Stock said, with one claim over $2 million.

In the coming months, QualChoice is expected to officially announce its participation in the state health insurance exchange.

In October, the exchange is expected to start enrolling individuals and employees of small businesses for policies that go into place Jan. 1.

It’s estimated that more than 200,000 Arkansans will be buying insurance through the exchange, and some of those will certainly buy from QualChoice.

“Any business likes new customers,” Stock said.

But, he said, there are still a lot of unknowns about the exchange, including what it will cost policyholders and the insurance companies.

“The question is, what’s the price have to be to offer coverage to those people? And what’s the cost of providing care to them going to be? And can you do it profitably?”

Stock said he also is unsure what the demand for health care services will be for those who currently don’t have insurance.

“Are there diabetics that haven’t been managed?” he said. “Those could be high-cost patients.”

The health care reform law prohibits insurance companies from turning people down for coverage based on pre-existing conditions.

Stock said he thinks the price of a health insurance policy in the exchange will be higher than traditional coverage today.

Still, the federal government will provide a subsidy to the policyholders to buy the insurance in the exchange. The amount of the subsidy will be based on the policyholder’s income.

One of the goals of health care reform is to lower health care costs, but Stock said he hasn’t seen prices fall since the health reform law was passed in 2010.