October 2006

IEEE Association Medical Plan Caught in U.S. Dilemma

Part One in a Two-Part Series

By Trudy E. Bell

Personal full disclosure: I am a science journalist, formerly a senior editor for IEEE Spectrum for 14 years. Although I departed the IEEE in 1997 to see what the for-profit business world was like when an opportunity arose with the international management consultant McKinsey & Co., Ive continued close ties with the IEEE, writing and editing articles for Spectrum, Todays Engineer, and The Institute as well as being lead writer for the IEEEs millennium book Engineering Tomorrow.

So it was only natural, after I returned to science journalism as a fulltime freelance writer in 2000 and was nearing the end of the McKinsey COBRA in summer 2001, that I looked to the IEEEs Comprehensive HealthCare insurance plan for coverage for myself and my daughter. IEEE has offered the plan to members in the United States since 1987 specifically for self-employed IEEE members. I also well remembered that in the early 1990s, the plan had attracted an intellectual-property lawyer friend who was also an EE; after examining options offered by the American Bar Association, the American Management Association, and other organizations, he chose the IEEE medical plan for himself because he felt it was superior to them all for both coverage and premiums.

If the plan had passed the scrutiny of my engineer-lawyer friend, then I figured it was the thing for me.

Dilemma in a Microcosm

In August 2001, the plan certainly spoke for itself. The McKinsey COBRA premiums had set me back $565 per month for its excellent coverage with a deductible of $250 per person for me and my daughter. If I were willing to accept a higher deductible of $2,250, I could get an IEEE plan (managed for the IEEE by broker/administrator Marsh Affinity Group Services and offering insurance underwritten by CIGNA, a global insurance company that has earned an A- rating from A. M. Best) for only $792 per quarter less than $300 per month for amazingly similar coverage. Because my daughter and I both were in good health, I signed on the dotted line for automatic withdrawal, indeed a satisfied IEEE member.

In January 2003, I was unsurprised when the quarterly premium rose $165 to $957 per quarter. Since there had been no increase through 2002, the rate hike seemed reasonable.

In January 2004, however, my freelancers heart nearly stopped when $1,152 was pulled from my checking account for the quarterly premium. Had the premiums really jumped 45 percent in two-and-a-half years, or was there some error? The initial shock subsided as I realized the monthly outgo was still less than I paid for the McKinsey COBRA, but now I was alarmed: with such significant jumps two years running, what would the future bring?

Worse was yet to come. Near the end of the year, I was stunned to hear that my quarterly premiums would more than double for 2005 skyrocketing to $2,403 per quarter ($9,612 annually), or more than triple what Id signed up for three and a half years earlier, absent any change in my households health. The rate hike was announced in a very earnest letter that also granted policy-holders an additional month to pay. Out of sheer loyalty to the IEEE, I decided to hang tough. But when it dawned that the monthly premium cost of $800 was now approaching equality with my mortgage, I sank into a chair and declared to my daughter: We may have to join the ranks of Americas medically uninsured.

Why? To a freelance writer or self-employed engineer every penny of income has to be earned. There is no such thing as paid vacation or paid sick leave. An annual premium of just under $10,000 (after-tax dollars) meant I literally had to pitch, sell, research, and write four extra feature articles a year just to raise the cash for medical insurance (a normal hefty magazine workload is 10 or 11 features a year).

The last straw came November 2005. The annual rate-hike letter this time dropped another bomb: insurance benefits (reimbursements) were being cut. In spite of that, premiums were again shooting up to $2,616 effective January 2006. The reason given: claims were excessive. I tossed the letter across the room, snorting: So one physical exam a year is excessive, eh? Id love to get nearly $11,000 a year for doing nothing!

Immediately I dialed an Anthem Blue Cross representative a church friend had recommended. Effective 1 January 2006, my daughter and I had new individual insurance for a quarterly premium of $1,183 greater coverage at a premium fully 55 percent less than the IEEE plan through CIGNA.

What happened?

None of this squared with my previous 23 years of experience with the IEEE as both a staff member and a contractor. Dedicated, careful, above-board, capable, fair, rigorous, even-handed, concerned those were adjectives that came to mind. I couldnt imagine price-gouging or rampant incompetence characterizing this one program.

In April 2006, IEEE announced the results of its 2005 member satisfaction survey, which showed that although 80.5 percent of members were highly satisfied or satisfied with the IEEE as a whole, they were least satisfied with the healthcare insurance program. When I wrote a letter describing my own experiences with the IEEE group medical insurance, Lynn Koblin, manager of IEEE member benefits, responded that the medical plan was undergoing two independent reviews one a joint review by the IEEE Insurance Committee (IC) and the Individual Benefits & Services Committee (IB&SC), and one by Mercer Oliver Wyman Actuarial Consulting Inc. that was commissioned by IEEEs broker/administrator Marsh Affinity Group Services. Results from both reviews would be published in a white paper. Given my personal experiences with the plan and my profession as a science journalist, would I be willing to report on the results of those reviews?

Yes, indeed. I was mystified, and wanted to know the straight facts.

Converging National Trends

In a nutshell, heres the story as outlined by both white papers:

By law (in compliance with the Health Insurance Portability and Accountability Act, or HIPAA, of 1996), association medical plans must accept members without underwriting if the individual has had medical coverage continuously for 18 months and has not had a lapse in coverage for more than 63 days following the involuntary termination of the last medical plan. That means that anyone who has been an IEEE member for 24 months or longer is eligible, with no exclusions for pre-existing conditions, and no requirement to provide evidence of past insurability. Members are eligible to apply up to age 65. Once members are insured, they may retain the insurance even after age 65 (even as a supplement to Medicare, if a participant desires); moreover, the plan will also cover a surviving spouse. These last two IEEE member benefits are unique in the insurance marketplace.

Ironically, those very features which are perhaps the most valuable benefits of the IEEE plan, especially to the seriously ill also pose the greatest financial detriment to the plan. In September 2005, CIGNA reported that, in comparison to the employer plans it managed, the IEEE association plan had a much higher percentage of chronically ill participants: indeed, in 20042005, some 26.2 percent of the participants comprised 61.9 percent of the cost.

Because of these economics, association plans have become virtually extinct. In 1990, IEEE was one of 142 nonprofit associations that offered health insurance to their members (as opposed to their employees). Of those, today only three large associations remain with the IEEE being the largest. Even so, it represents a relatively small group: some 2,100 members and their families (lawful spouses and dependents up to age 25 in all states excepting Hawaii).

Meanwhile, in the United States as a whole, a 2005 study by the Kaiser Family Foundation revealed that the average annual cost for healthcare in the nation is $10,880 per family. The family frequently doesnt see all that cost, because the average employee contributes $2,713 toward medical premiums while the average employer contributes $8,167 for that same individual. In comparison, the average annual cost of the IEEE medical insurance program for the same period was $11,011 tracking the national average within 1 percent.

In short, as high as its premiums may be, the CIGNA plan offered to IEEE members is actually realistically and competitively priced. The IEEE is caught up in an environment the largest corporations and the US Government (Medicare and Medicaid) have been unable to manage, observed the actuarial firm Mercer Oliver Wyman in its white paper. In our opinion, this puts the IEEE programs in the top quartile of comparable programs.

But the story gets tougher. In the CIGNA plan for IEEE, $1 is paid out in claims for every $1 collected in premiums. That means no premium dollars are left over to market the plan, pay administrative expenses, or most importantly to build reserves. As a result, over the past two decades the plan has accrued a deficit from which it has not recovered: $6 million at the end of 2005, and a projected $10 million by the end of 2006. The IEEE is not liable for that deficit, meaning that CIGNA has been challenged to develop a rate structure that will not drive away potential participants while still stemming the losses.

Moreover, whereas CIGNA reports that the average age in its employer programs is about 38 years, in the IEEE Comprehensive HealthCare plan it is 56. And the group size of 2,100 certificates (over 4,000 people) is not large enough to drive economies of scale.

Stay tuned

Past is prologue to the future. Even as I was drafting the manuscript for this article, the IEEE member benefits administrators were beginning to confer with CIGNA about what benefits and premium changes may be mandated in 2007, and the IEEE Board of Directors plans to revisit the issue at their November meeting. The results of those meetings will form Part II of this two-part article in a future issue of Todays Engineer. NOTE: Those members who participate in the Plan will be notified personally about changes that affect them, before our Part II is published.

IEEE members may access the white paper in full on the Individual Benefits & Services Committee Web page. The Comprehensive Healthcare Insurance Dilemma, issued May 2006 by the 2006 IEEE Insurance Committee and 2006 IEEE Individual Benefits & Services Committee, is available at: www.ieee.org/memberonly/fap/chc_whitepaper.pdf.

Trudy E. Bell is an award-winning science journalist and IEEE member. Comments may be submitted to todaysengineer@ieee.org.