Got It Covered

Got It Covered

Sarasota Memorial Hospital started the Varsity Health Charter Plan to cover small businesses that cannot afford commercial health insurance.

By Sean Roth

Real Estate Editor

Imagine a balance sheet bleeding from a $60 million annual reoccurring debt. Not many companies could survive, but the Sarasota Memorial Health Care System (SMH) faces a similar bill every year for bad debt and charity work. Most of that debt is owed by the poor, the under-insured and uninsured. If for no other reason, that is why Marc Lazarus supports the hospital's new insurance charter plan.

Lazarus, vice president of business development for the hospital, was also one of the architects of the plan. The Varsity Health Charter Plan provides a lower-cost insurance plan for business employees, whose employer has been unable to provide health insurance for the past six months and whose average employee income doesn't exceed 250% of the federal poverty level.

That means a family of four can not earn more than $47,125 annually.

Employers, who must have a minimum of four employees, are required to pay 50% of the premiums. The flipside is that premiums run 35% to 45% below comparable commercial products.

"This is very unique," says Kim Streit, vice president of health care research and information for the Florida Hospital Association. "This is probably the only hospital in the state that could set something like this up because of its charter. What is really different is the way the program is designed. Also very few have a program for the uninsured."

SMH received a waiver from the Florida Department of Insurance for the plan, Streit says. While most hospitals apply for a license to set up an HMO business line.

The plan was seeded by the Sarasota County Public Hospital Board and the Sarasota Memorial Physician Hospital Organization (PHO), a 500 or so member physician network that receives funds from fees charged to insurance companies and third-party administrators. The plan will be governed by the publicly elected nine-member hospital board.

This is the second insurance plan that the Sarasota hospital has administered. For the past 11 years, SMH has offered large private companies a la carte employer-funded coverage through Healthcare Sarasota. The plan covers about 16,000 employees, primarily from municipal governments such as Sarasota County, and the cities of Sarasota and Venice.

"All the infrastructure was already in place," Lazarus says. "Basically the PHO is manning the plan for the hospital. (Our target clients) are folks who do not have insurance right now. This is a market that the hospital is currently not getting reimbursed for. When they get sick they are either waiting to get better or going to the emergency room."

The plan offers numerous benefits for the hospital. This is a new paying group of patients that is locked-in to using SMH doctors and facilities. If the plan reduces the hospital's bad debt and charity work by even 2% that is equal to $1.2 million annually. There is also a large market for the plan; SMH officials estimate that 45,000 to 55,000 working families in Sarasota County do not have health insurance.

In addition, the startup cost is minimal. After the $200,000 investment from the PHO and the board for the startup costs and high-impact insurance policies, the plan is self-sufficient based on premiums. The PHO will add two people to its staff as case managers.

On the larger scale, this is a new group of people that will now get care earlier. The plan has several programs and incentives to encourage preventive care and regular health care exams.

"Whenever you do that you lower the cost of health care for everyone," Lazarus says. "This was a good decision by any measure, not just on the P&L side. This is a tremendous niche; it's an unfortunate niche, but it's really a large group of people."

The plan was first brought up at a PHO board meeting about three years ago.

"We had done well in the self-funded arena with the big employers," Lazarus says. "We were looking at the demographics of the area to see if there wasn't anything else we could offer to small businesses, which make up the majority of the companies in Sarasota County."

After reviewing various plans, PHO officials decided on the charter plan.

PHO officials selected an actuary for the new plan, Milliman of America Inc., and the necessary underwriter, Health First of Melbourne. After the plan requirements were in place, the PHO submitted it to regulators at the Florida Office of Insurance Regulation. The plan received regulatory approval in late 2003. The plan debuted April 1.

"The consent order requires that we can only add 3,500 members the first year," Lazarus says. "Unfortunately, it is probably going to still be too expensive for some folks."

So far, initial demand has been lower than he expected, he says. As of August 9, the plan had enrolled 12 groups.

"But that's OK," Lazarus says. "We want to do this right. This will just allow us to work out all the bugs on a smaller level. We are adding brokers to the mix now."

The Varsity Health Charter Plan is starting with a network of 170 physicians in the SMH system.

While, the insurance premium for the new plan is promoted as being lower than commercial insurance providers, Lazarus says there is really no competition between the two insurance groups.

"These are people, who would otherwise have no insurance," Lazarus says. "If we are wildly successful we will have 40,000 people. We couldn't afford the risks of a company like Aetna. We can't compete with them in certain areas, and they are not necessarily interested in the small groups that we would cover."

Varsity Health vs. Aetna

Monthly premium

Typical Cleaning Co.

GenderAgeCharter PlanAetna Difference

Female44$214.26$339.80$125.54

Female57$338.33$418.20$79.87

Total$552.59$758$205.41

Retail Co.

GenderAgeCharter PlanAetna Difference

Male37$100.76$174.30$73.54

Female19$150.51$333.20$182.69

Female24$150.51$333.20$182.69

Female47$239.14$339.80$100.66

Total$640.92$1,180.50$539.58

Construction Co.

GenderAgeInsuredCharter PlanAetnaDifference

Male39employee$102.78$174.30$71.52

Male42employee$128.31$274.10$145.79

Male44spouse$357.80$627.70$269.90

Total$588.89$1,076.10$487.21

Transport Co.

GenderAgeInsuredCharter PlanAetna Difference

Male46family$564$885.80$321.80

Male42children$248.21$521.80$273.59

Female29employee$195.14$333.20$138.06

Male24employee$125.79$138.60$12.81

Male33employee$82.25$174.30$92.05

Total$1,215.39$2,053.70$838.31

Source: First Benefits, marketing agent for the Charter Plan

Updated June 30, 2004