Case Study - Dropping Small-Group Insurance Products

Read Case Study 3 fromMulti-Sector Casebook in Health Administration, Leadership, andManagement,and respond to the following:

1.Summary of the major facts-Summarize the facts in narrative or outline form. Include the most important and pertinent incidents in the situation. (Do not simply restate the entire case.

2.Problem(s)-The facts of the case reveal one or more problems that require attention. Indicate at least three (3) problems affecting GreenHealth and explain their importance.

3.Alternative Solutions and Probable Outcomes -Analyze optional courses of action. This is one of the most important parts of the analysis. Remember that a decision not to act or to do nothing is always an alternative. However, doing nothing also has repercussions - sometimes worse repercussions than any other action. Identify three alternatives you would present to the senior leadership team.

4.Recommended Solution -Recommend 1 solution per problem (3 recommendations total). Each recommendation should include a justification for the action, how the action would be implemented, and the probable outcome. While some of this information has been included in previous sections, it is still important to present the recommendation in its final form and to justify its selection.

5.Include two or more references to support your rationale.

Extra Credit (15 points): You may earn up to fifteen (15) points of extra credit for submitting a voice or video recording in which you present your Case Study. (This is in addition to submitting original deliverable requirements)

*********************Please see case study summary as attached below*************************

A large, publicity-traded national health insurance company, GreenHealth, announced its decision to drop a number of small-group insurance products in Virginia because of its financial losses. Originally scheduled to occur in four months, GreenHealth has agreed to allow customers affected by the decision to continue on their existing products until their scheduled renewal dates, at which point products will be stopped. The company will continue to offer a number of small-group products in the state, although the remaining product options will generally have higher premiums and less attractive benefits. Paul Dennis, VP of Small Group Products for GreenHealth, advocated for the decision to drop the products instead of proposing a rate of increase, which would have required GreenHealth to justify the increase to the state. The change will have a significant impact on the company's small-group product line in Virginia and will result in lower risk membership and lower revenues through reduced premiums, but also higher earnings. The small-group market for GreenHealth has been losing money for the company for the last two years. The products being dropped are the ones that have the most consumer demand, including the company's most popular health insurance plan, WorkHealth EPO (exclusive provider organization). The products that will be retained are much less cost competitive in the market. Small employers in Virginia do not have many plans left from which to choose. GreenHealth originally planned a hard stop of the products in four months, however, the insurance regulators pushed back and GreenHealth compromised with allowing coverages to end on renewal dates. The regulators had an issue with ending coverages abruptly as it would have affected customers' deductibles and out-of-pocket maximums. Paul, in defending the company's decision to regulators and consumer advocates, argued that the small-group market in the state has been dysfunctional for a long time. The primary issues include community rating for premium rates (meaning everyone pays the same price), guaranteed issue (meaning health plans cannot turn individuals or groups down, regardless of preexisting conditions), and no requirement that anyone within a market buy insurance. Paul specifically cited adverse selection, hospital rate increases, and low premiums for mandated products as reasons. Recently, it has become very difficult for health plans to obtain rate increases. Virginia is one of a number of states that has authority to deny proposed premium increases and under the Patient Protection and Affordable Care Act (PPACA), the Centers for Medicare & Medicaid Services (CMS) now has authority in conjunction with states to review potentially unreasonable increases in health insurance premiums to determine whether rate increases are as justified. Under PPACA, CMS can provide states with supplemental funding to strengthen a state's review process. BACKGROUND According to America's Health Insurance Plans (AHIP) organization, small groups are classified as companies with 2 to 50 employees. Insurance coverage for small groups generally is fully insured. Employers purchase an insurance contract from a licensed health insurer or HMO, which assumes the full financial risk for paying healthcare claims. Small-group health insurance is offered on a guarantee-issue basis, meaning a small business cannot be denied coverage due to the health statues or illness of its employees or their dependents, including for such factors as health status and claims experience of the enrollees of a group. NEXT STEPS GreenHealth has approximately 300,000 small-group members in Virginia. Paul anticipates that the company only risks losing one-third of those covered lives since he expects many of the affected employers will switch to one of the higher cost products that GreenHealth will continue to offer. Small employers in Virginia do not have many other plans from which to choose. In general, small employer-sponsored insurance coverage will undergo significant changes under PPACA starting in 2014 when the health insurance exchanges are in place. Paul recognizes that given the significantly higher premiums and lower benefits offered by products that remain, the company's membership losses could be much larger than anticipated. In 2011, with the 300,000 small-group covered lives, GreenHealth earned $1.4 billion in premiums but reported a medical lose of 89.5%. The company's administrative expense ratio in Virginia hovered around 12.8%, generating a negative operating margin of 2.3%. Assuming a loss of 100,000 covered lives, Paul estimates the small-group product line in Virginia will swing to a positive operating margin (see Table 9-1) despite the negative fixed administrative leverage that the company would experience from losing nearly $600 million in premiums. GreenHealth's Small-Group Product Financials in Virginia (2011) 2011 Pro Forma PMPM* Covered Lives Member Months PMPM* 300,000 200,000 3,060,000 2,040,000 Premiums $1,400,000,000 $388.89 $836,502,000 $410.05 Medical Expenses $1,253,000,000 $348.06 $714,000,000 $350.00 Medical Loss Ratio (MLR) 89.5% 85.4% Medical Margin $147,000,000 $40.83 $122,502,000 $60.05 Administrative Expenses $178,500,000 $49.58 $112,927,770 $55.36 Administrative Expense Ratio Operating Profit Operating Profit Margin *Per member per month 12.8% ($31,500,000) -2.3% 13.50% ($8.75) -2.3% $9,574,230 $4.69 1.1% 1.1% Running head: CASE STUDY 1 Case Study Name Institution CASE STUDY 2 Case Study Summary The company has decided to cut down the insurance products that it offers to small groups. The reason that the company has stated for doing this, is because these products are not cost effective. The firm is saying that the profits that the company is using for small groups are small compared to the amount of money that they invested in the products. Also, the company is saying that the number of small groups in Virginia is decreasing which means that the company is going to have a hard time trying to meet its budget. This withdrawal is going to cost the company according to the report. The level of profits the firm makes is going down as well as the number of clients that the firm has within its pool are also going to go down. This will be followed by a decrease in also the share prices of the company in the stock exchange as well. Problems The first problem that the firm is going to face when it removes some of its products off the market is that the company risks making low profits. This will have an impact on the company in the sense that the company is going to have problems expanding its operations to the other part of the world and the country as well. The other problem that the company is going to have is that it risks having a small membership. This will lead to the reduction in the pool amount that the company controls. When the money in the pool reduces, what is going to happen is that the company is going to have problems in trying to cover different expenses arising from losses by its subscribers and clients. The third problem that the company is going to face is that it risks having its shares prices fall down which will affect the value of the company in the share market which will be catastrophic. CASE STUDY 3 Alternative Solutions and Outcomes The company is dropping these products because the products that it offers are not cost effective. This means that the costs that are incurred while offering these products are much more than the profits that are incurred in selling these products. Therefore in such a situation, the following move is important. The company can decide to increase its operation by getting into a franchise with a larger insurance company which they can use their name to further expand their market horizon (Albrecht, 2015). The other move that the company should consider is borrowing a loan to try branch into as many portfolios as possible. This means that instead of the company being only dependent on insurance money it can diverge its operations into the banking industry where they can be able to get extra profits and extra money for expansion purposes. The last move that the company should consider is to increase its premiums; this means that the company will be able to have increased profits which will be sufficient in ensuring that the company is run in the right way. This will give the company more profits enough to keep all products in the market (Albrecht, 2015). Recommended Solutions The recommended solution would be to increase the premiums of the products; the problem that exists is that the products are not cost effective. For this reason it means that the company is not earning the kind of profits that it is seeking to earn from these products. Therefore increasing the amount of premiums will not increase the firm's needed profit for expansion but it will also increase the firm's pool value (Chade & Schlee, 2013). CASE STUDY 4 The other solution that the company needs to take into consideration is to invest in advertising. It may be the reason why these products are not performing well in the market is because the market is not aware that such products exist. Therefore, to be able to solve this problem, the firm needs to invest in advertising which will ensure that the product becomes known thereby boosting the returns of the firm. Lastly, the company can decide to downsize its workers. This will ensure that the company increases its operating margin which it can use to reinvest in its products. One of the ways of increasing the profit that a firm makes is by cutting down the costs that the firm incurs. In this case, one of the ways through which the firm can be able to cut down its costs is by cutting down on the number of employees that it employs. This will boost the productivity of the firm. CASE STUDY 5 References Albrecht, P. (2015). Not a Fallacy of the Law of Large Numbers: Pooling Risks and the Utility of Insurance. SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.2683990 Chade, H., & Schlee, E. (2013). Coverage Denied: Excluding Bad Risks, Inefficiency, and Pooling in Insurance. SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.2368949 Running head: CASE STUDY 1 Case Study Name Institution CASE STUDY 2 Case Study Summary The company has decided to cut down the insurance products that it offers to small groups. The reason that the company has stated for doing this, is because these products are not cost effective. The firm is saying that the profits that the company is using for small groups are small compared to the amount of money that they invested in the products. Also, the company is saying that the number of small groups in Virginia is decreasing which means that the company is going to have a hard time trying to meet its budget. This withdrawal is going to cost the company according to the report. The level of profits the firm makes is going down as well as the number of clients that the firm has within its pool are also going to go down. This will be followed by a decrease in also the share prices of the company in the stock exchange as well. Problems The first problem that the firm is going to face when it removes some of its products off the market is that the company risks making low profits. This will have an impact on the company in the sense that the company is going to have problems expanding its operations to the other part of the world and the country as well. The other problem that the company is going to have is that it risks having a small membership. This will lead to the reduction in the pool amount that the company controls. When the money in the pool reduces, what is going to happen is that the company is going to have problems in trying to cover different expenses arising from losses by its subscribers and clients. The third problem that the company is going to face is that it risks having its shares prices fall down which will affect the value of the company in the share market which will be catastrophic. CASE STUDY 3 Alternative Solutions and Outcomes The company is dropping these products because the products that it offers are not cost effective. This means that the costs that are incurred while offering these products are much more than the profits that are incurred in selling these products. Therefore in such a situation, the following move is important. The company can decide to increase its operation by getting into a franchise with a larger insurance company which they can use their name to further expand their market horizon (Albrecht, 2015). The other move that the company should consider is borrowing a loan to try branch into as many portfolios as possible. This means that instead of the company being only dependent on insurance money it can diverge its operations into the banking industry where they can be able to get extra profits and extra money for expansion purposes. The last move that the company should consider is to increase its premiums; this means that the company will be able to have increased profits which will be sufficient in ensuring that the company is run in the right way. This will give the company more profits enough to keep all products in the market (Albrecht, 2015). Recommended Solutions The recommended solution would be to increase the premiums of the products; the problem that exists is that the products are not cost effective. For this reason it means that the company is not earning the kind of profits that it is seeking to earn from these products. Therefore increasing the amount of premiums will not increase the firm's needed profit for expansion but it will also increase the firm's pool value (Chade & Schlee, 2013). CASE STUDY 4 The other solution that the company needs to take into consideration is to invest in advertising. It may be the reason why these products are not performing well in the market is because the market is not aware that such products exist. Therefore, to be able to solve this problem, the firm needs to invest in advertising which will ensure that the product becomes known thereby boosting the returns of the firm. Lastly, the company can decide to downsize its workers. This will ensure that the company increases its operating margin which it can use to reinvest in its products. One of the ways of increasing the profit that a firm makes is by cutting down the costs that the firm incurs. In this case, one of the ways through which the firm can be able to cut down its costs is by cutting down on the number of employees that it employs. This will boost the productivity of the firm. CASE STUDY 5 References Albrecht, P. (2015). Not a Fallacy of the Law of Large Numbers: Pooling Risks and the Utility of Insurance. SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.2683990 Chade, H., & Schlee, E. (2013). Coverage Denied: Excluding Bad Risks, Inefficiency, and Pooling in Insurance. SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.2368949