Is Disaster Brewing in New York’s Small Group Market?

The United Hospital Fund (UHF) just issued a comprehensive study of patterns in the New York State small group market and they don’t look good. From 2007 to 2016 enrollment shrank by 600,000 members, to 1.1 million. Rates were 35% higher than the national average. This, despite New York being one of the very few states to increase the size of their small group risk pool from 50 employees to 100 in 2016.

Looking into these results, UHF compared New York small group enrollees to a federal government measure of relative risk scoring and New York’s small group market was the worst in the US at 1.774 as compared with the national average of 1.324.  

The small group market in New York has headed into a tailspin. What is going on? The regulatory environment in New York is one of the toughest in the country. With both federal and state minimum loss ratio rules and prior approval requirements, New York had a choke hold on rates and they were suppressed so much that they lead to the failure of two significant small group insurance companies: Health Republic and CareConnect. While regulators have now loosened the reins, rates have escalated enough that employers are opting not to sponsor health plans, and the market pushback to plan cost increases has been incredible. 

Employers are turning over every rock to relieve this cost strain. Those with a significant operation in another state are using that location if they can get a better deal. Except for a limited number of grandfathered plans, New York does not allow employers with fewer than 100 employees to self-insure; however, enrollment in Professional Employer Organizations (PEOs) has expanded significantly. PEOs use health questionnaires to qualify prospects and they constantly market to small employers, which creates adverse risk selection in the small group market.

Individual consumers aren’t helping the small group risk profile either. The New York State Essential Plan was introduced in 2016 to the individual market. Enrollment in this high deductible plan has grown from 379k in 2016 to 665k in 2017 and now accounts for more than 50% of the non-Medicaid enrollment in New York. These plans are siphoning off healthy risks.   

Medicaid enrollment has increased and organizations have been formed to actively move these low-income employees off the employer plan. This also creates some adverse risk selection because sicker New Yorkers would rather avoid the adverse implications of public assistance if they can possibly afford it, while healthier New Yorkers are tempted by the cost subsidization.

Health plans, regulators and New York residents need to take note. The signs are not good – something’s got to give. And the rest of the country should also be closely watching since the same dynamics exist throughout the nation.

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