Insurance Issues

Has the Healthcare Group of Arizona turned the corner?

Julia Miller furrows her brow and holds up bills. A self-employed Pilates instructor, she joined the state-run Healthcare Group of Arizona only a year ago. But in that short time, she's watched her monthly premiums climb from $152 to $205.

"That's a huge jump," she says, "especially right now, because everything else is going up, too."

Behind that price hike is a complicated blend of politics, number-crunching and ideological wrangling over the role of government. To many liberals and moderates--not to mention small entrepreneurs such as Miller--Healthcare Group is a boon. By contrast, most conservative lawmakers view it as an unaccountable boondoggle.

Just how this conflict is resolved may determine not only the fate of some 20,000 current group members, but the future of such innovative programs in Arizona.

"There are two philosophies in the Legislature," says Tony Rodgers, director of the Arizona Health Care Cost Containment System, which administers the Healthcare Group. "One is that government shouldn't be competing with the private sector. That ideology sees Healthcare Group as a threat, or at least as inappropriate."

The other, presumably, is that by enrolling small businesses and people with problematic medical histories, the state is filling a need that commercial insurance will only service at exorbitant rates, if at all.

Still, the program's "community-rated" approach was nearly its undoing. Unlike commercial insurance companies, Healthcare Group does not underwrite, meaning that potential members aren't screened for pre-existing conditions. That lack of pre-screening, combined with a period of explosive growth--from around 16,000 members at the end of 2005 to almost 27,000 last year--left Healthcare Group unaware that a storm of claims was brewing.

The result was a roughly $20 million deficit. "We didn't see the trend changing dramatically until we were already nine or 10 months into it," says Rodgers. "By that time, we had to initiate changes in our pricing model, which we did. But it takes time to take effect."

The deficit marked a new low for a program created amid much optimism by the Arizona Legislature in 1985. From the beginning, Healthcare Group's mission was providing affordable insurance to businesses with 50 or fewer employees. But it eventually proved susceptible to the troubles engulfing the rest of the medical insurance industry; by 2000, the program was bleeding red ink, and the Legislature provided an initial $8 million bailout. By 2005, total subsidies had exceeded $40 million.

Meanwhile, those deficits caught the attention of conservatives, who found new ammunition in their philosophical battle against this style of government-funded health care. Among the critics was Sen. Barbara Leff, a Paradise Valley Republican and co-chair of a committee charged with examining the program. "Why," she asked an Arizona Republic reporter in December, "should taxpayers subsidize a product for some people who can get insurance elsewhere?"

Since those dark days, advocates point to Healthcare Group's remarkable financial turnaround, achieved through a nearly 50 percent staff reduction, by raising many premiums more than 30 percent, and through a temporary cap on enrollment. "The bottom line is, because of those changes we made in the last fiscal year, we're actually going to break even," Rodgers says. "We're even going to make a little extra to pay on the debt from 2007.

"I think we've demonstrated that Healthcare Group can be sustainable."

But skeptics such as Rep. Kirk Adams aren't convinced. The Mesa Republican chairs the House Government Committee, and recently sponsored a bill to gut Healthcare Group. "Sustainability has been the AHCCCS director's goal since 2001, and since 2001, we've bailed out Healthcare Group to the tune of $40 million," he says. "It's nice to have goals, but the reality is that you just can't get there."

Instead, Adams' bill would replace Healthcare Group with a high-risk pool, for all those enrollees who've helped run the current program into deficit. Under his plan, these small-business members--mostly sole proprietors--would obtain commercial insurance, with the state picking up part of the tab. According to Adams, such a pool is now used in 34 other states.

Up to 80 percent of current Healthcare Group members are among the higher-risk "groups of one," Adams says. "They couldn't qualify in the private market because of their health histories, and that's why they gravitated to Healthcare Group.

"But they've become a drain on the system. Healthcare Group has been operating as a high-risk pool without any of the controls that you see in other states with high-risk pools."

According to Rodgers, however, those other states with high-risk pools ultimately shell out even more taxpayer money. "If you get all of the high-risk people into one group, you'll need a provider or health-plan tax to subsidize that high-risk pool. Every place that they've done one, they end up with higher and higher subsidy requirements, because the cost of care is tremendous."

Adams calls that a red herring. "We already subsidize Healthcare Group now," he says, adding that the governor's office, rather than the Legislature, restricted "groups of one" from becoming new Healthcare Group members. "So you have all of these people out there who would like to purchase insurance--would like to participate at some level--but can't (now) qualify elsewhere. It boggles my mind that the director of AHCCCS is opposed to the risk model, because it would actually expand coverage and follow the lead of 34 other states."

But following those examples carries its own risk. Arizona already has approximately 1 million uninsured residents, and adding to their rolls would mean only a greater burden for hospitals. In light of that, Healthcare Group supporters say the program should actually be expanded rather than disbanded. They point to a report by St. Luke's Health Initiatives, a community health think tank, showing that 94 percent of the state's businesses have less than 50 employees--but only 30 percent of those businesses offer health insurance.

The freeze on new Healthcare Group enrollments was recently lifted, and staffers are contacting businesses that have been treading water on the waiting list. But even today's slimmed-down program--membership has been reduced by about 6,000--is no guarantee of permanence.

Tony Rodgers is diplomatic. "We told the Legislature to just give us time to address this through pricing and benefits--which we did," he says. "But sometimes, legislators just want to take action themselves."

Meanwhile, Healthcare Group members such as Julia Miller simply hope for an affordable insurance program to rely on. "To me, it's the closest we've gotten to some sort of universal coverage," she says. "What else are you supposed to do if you're a self-employed person?"

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