A local HMO, with 75,000 members and operating in one area of their state had an opportunity to quote a large major employer. The employer had over 2,000 members (employees & dependents) in the HMO service area, all of whom were covered by their self funded plan – with a variety of mostly low cost options.

The HMO offered a quote for their standard co-pay based HMO product without considering plan design differences or cost differentials. The employer had provided prior experience as part of their RFP package, but the HMO decided that it was “not credible” and instead prepared manual rates.

During the rate negotiation process, the HMO agreed to offer an out of network benefit and then agreed to offer their plan on a statewide basis through a wrap-network they had an existing relationship with already.

Initially, the health plan was ecstatic when they learned that they’d enrolled almost 10,000 members throughout the entire state. They quickly turned to panic, when they began to understand:

• The vast majority of members that enrolled were outside of their core service area and they had limited ability to manage them.
• The experience they dismissed as not credible was in fact accurate; the group’s experience was much worse.
• Their benefit plan was dramatically richer than all of the self funded options the employees had. Despite the higher cost, this led to dramatic selection issues when employees saw the benefit comparison.
  

The group’s loss ratio was well in excess of 100% and resulted in significant losses for the plan.

While this is one plan’s real life horror story, others can learn from it.

• Think strategically when underwriting a large case, particularly when there are other options. Put yourself in the employees’ position. What are they thinking about when making their benefit decision? A plan has the right to know what the options are when they’re being asked to assume the risk.
• Never ignore a group’s experience. If it doesn’t look accurate, don’t hesitate to question it.
• Know your core strengths and stick to them.
• Don’t be afraid to walk away from business that doesn’t meet the plan’s strategic objectives.