By Ray Stern
By New Times
By Amy Silverman
By Stephen Lemons
By Stephen Lemons
By Monica Alonzo
By Chris Parker
By New Times
The state had awarded Intergroup the contract to provide indemnity coverage to state employees before, in 1992. Smith fought to have Intergroup removed.
Though only about 10 percent of the state's 50,000 employees opt for indemnity coverage, it generates a lot of controversy.
Thanks to health-maintenance organizations (HMOs), indemnity coverage is almost obsolete. Basically, indemnity works the way health coverage used to work, and the way most other forms of insurance still work. The insurance company agrees to pay most of the cost of health care--usually around 90 percent--while the insured pays the premiums and whatever's left over. The insured person is indemnified (freed) from the majority of the cost of health care while enjoying much greater freedom in selecting physicians, clinics and hospitals. Premiums for indemnity plans are significantly higher.
It's difficult to control the cost of indemnified care, because there's no incentive for doctors to limit treatment. What patients need--and, critics argue, often what patients don't need--they get.
HMOs were a response to this type of coverage; physicians are paid a set amount per patient, regardless of what treatment is needed. This is supposed to discourage unnecessary care.
Which is great, as long as you're healthy.
But if you're a person who needs to see a doctor a lot--or if you just don't want to stay within the limits of an HMO--HMOs don't work so well.
That's why about 5,000 state employees are now on the Blue Cross/Blue Shield indemnity plan. For one reason or another--they require regular testing, they have a chronic condition--an indemnity plan better meets their needs.
In 1992, however, DOA couldn't resist a little penny-pinching with the indemnity plan, and gave Intergroup a chance to manage it.
It was a disaster. Hundreds of complaints were filed with the state Department of Insurance over Intergroup's failure to pay claims. Many employees paid health-care costs out of pocket when Intergroup denied their claims--something that's not supposed to happen with an indemnity plan.
Harvey Smith and his wife, concert pianist Ruth Kolb Smith, and University of Arizona professor Jacqueline Sharkey led the American Association of University Professors in taking their case to regulators, the media and the Legislature. They were featured on CNN, and a special Legislative Oversight Health Insurance Benefits Review Committee was formed to address their concerns.
The protesters won. In 1993, Intergroup was fined $51,839 by the Department of Administration and $57,480 by the state Department of Insurance for not paying claims. An Intergroup spokesperson admitted that the company hadn't been ready to handle the business. Blue Cross/Blue Shield of Arizona was selected as the state's indemnity carrier in 1994.
This was hardly crippling for Intergroup. Since the company was established in 1980, it's gone from a small regional firm to the largest HMO in the state aligned with a national powerhouse. In 1994, Intergroup was purchased by the San Diego-based Foundation Health Corporation, the nation's fourth-largest managed-care company. The buyout was covered in the pages of the Wall Street Journal and the New York Times.
Intergroup, which is based in Tucson, also has drawn national attention for its ability to maintain profits while boasting high customer satisfaction on surveys. Even after the fine, Intergroup retained the insurance contract for retired state workers, as well as being one of several HMOs state employees may choose. Currently, 43 percent of state employees are members of Intergroup's HMO.
Still, Smith thought he'd seen the last of Intergroup as an indemnity carrier. At the meeting at ASU in May, that assumption was shattered.
In its bid, Blue Cross had doubled its indemnity premiums for 1997-98, and Intergroup had come in significantly lower. In 1996-97, the monthly employee contribution for Blue Cross/Blue Shield's indemnity had been $55 for a single person and $167 for a family, which, combined with the state's contribution, equaled total premiums of $215 for an individual and $341 for a family.
But for 1997-98, the out-of-pocket premiums shot up to $110 single and $307 family, totaling $256 single and $608 family with the state's contribution. Intergroup offered employees indemnity premiums of $23.32 single and $128 family, which totaled $169 and $430 after the state kicked in--less than Blue Cross' 1996-97 cost. Based mainly on the price, the state chose Intergroup.
The Smiths thought it odd that the state seemingly had forgotten about Intergroup's track record. (Intergroup apparently had, too; on its bid for the state contract, the company answered "No" when asked if it ever had had a "financial penalty imposed for not meeting a certain guarantee.")
At the meeting, Smith recalls, "He [Kertesz] said, 'We really screwed up before, we admit it was totally mismanaged, but now we're prepared.' He said, 'We've got this dedicated 800 line, we have new software to handle claims.' We asked him how many people [non-state employees] were covered under their indemnity plan already . . . and he told us about 15,000 or 20,000."
Kertesz did not respond to requests for an interview or questions faxed by New Times.
Intergroup spokeswoman Donna Kreutz says a lot has changed since Intergroup last provided indemnity. In addition to the buyout by Foundation, all of Intergroup's top executives are new, and most have experience with indemnity products, she says. Also, a 1995-96 DOA audit of Intergroup, conducted by the Segal Company, found Intergroup achieved 99 percent accuracy levels on its claims processing.