PacAdvantage Closing

Pacific Health Advantage, or PacAdvantage, said Friday that it will stop its pooled health insurance coverage to 6,200 small businesses in California at the end of the year because of the withdrawal of health plan providers from the program.

The problem was not the withdrawal of PROVIDERS, but rather CARRIERS from the program. Blue Cross of California did not find the program to be economically feasible and withdrew.

Created as the Health Insurance Plan of California by the state in 1992 and taken over in 1998 by Pacific Business Group on Health, PacAdvantage is an independent, non-profit purchasing pool for small businesses with between 2 and 50 employees. It was intended to make health insurance more available and affordable and to ensure a choice of health plans for employees of small businesses.

In other words, this was an association plan that has been hailed as a solution to rising health care costs. Association plans are also known as MEWA’s.

At its peak, in 2002, its membership stood at 9,000 employers and 147,000 employees. But participation from insurers was voluntary, and under the weight of increasing health care costs and other unfavorable market pressures, they bailed out one after the other, Grgurina said

Current enrollment now stands at 116,000 covered participants; more than a 20% drop from the high enrollment.

Several things were inherently wrong and doomed the plan almost from the first.

The plan targeted small employers with 2 – 50 employees.

The plan was guaranteed issue. ANYONE can be covered, regardless of prior health history.

These two items alone are not enough to sink the plan but the next item appears to be a major flaw that pulled down the plan.

Each employee was allowed to pick their own plan. This is a key component that led to adverse selection.

When claims continue to rise faster than premiums, more carriers pull out of the plan. The more premiums rise, the more adverse selection there is which puts even more pressure on loss ratio’s. When there are not enough bodies & premium to support the risk the plan implodes.