Essence targets market here for health insurance

Will Astor//November 13, 2009//

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The Rochester health insurance market has long proved a tough nut for outsiders to crack, but Essence Healthcare of St. Louis is giving it a go.

The privately held, for-profit Essence, which sells only Medicare Advantage policies, competes in a limited segment, targeting Medicare-eligible consumers 65 and older.

With plans in Washington, Kentucky, Missouri, Indiana and Illinois, Essence has 30,000 enrollees and collects revenue of roughly $48 million a year. Its bid for a slice of the Rochester market, where it has advertised heavily for several weeks, is its first foray into New York.

Essence faces well-established competitors here. The longtime leader in the local Medicare Advantage market is Schenectady-based MVP Healthcare, whose 2006 acquisition of Rochester’s Preferred Care HMO largely was motivated by a desire to annex Preferred Care’s profitable Preferred Care Gold Medicare Advantage program.

Excellus BlueCross BlueShield got into the Medicare Advantage market later and to some extent played catch-up. It is angling to cut into MVP’s long-held lead, offering a $5.50-a-month basic Medicare Advantage plan to undercut MVP’s cheapest $60-a-month 2010 Preferred Gold Medicare Advantage offering by a considerable margin.

Essence is offering a zero-premium plan with lower out-of-pocket costs, dental and vision coverage and a more generous prescription drug plan than MVP or the Blues. The Essence plans’ benefits do have a non-financial cost, however: Essence has a more limited provider panel, and contract terms allow out-of-network care only for visits to an emergency department or urgent care center.

Medicare Advantage is an HMO-style version of traditional Medicare. It was created in the waning years of the Clinton administration to put a free-market wrinkle on the government-run, single-payer Medicare program. But it blossomed under President George W. Bush.

In the early 2000s, Congress added extra payments to Medicare Advantage, giving insurance carriers, some of whom had threatened to bail out of the program, reimbursements higher than traditional Medicare payments.

Currently, the extra boost of federal dollars to Medicare Advantage lets insurers offer Medicare-eligible seniors benefit-rich plans with monthly premiums as low as zero yet still rake in profits.

Private insurers face a likely reduction of Medicare Advantage payments-already cut from a high of 114 percent more than regular Medicare to 110 percent-to parity with traditional Medicare reimbursements as Congress searches for money in the federal budget to help fund health care reform.

MVP would not comment on Essence’s entry into the Rochester market, MVP spokesman Michael Traphagan said. Uncertainties hanging over Medicare Advantage would make any comment on the program itself speculative, he added.

Excellus spokeswoman Joy Davia responded to a request for comment with a written statement outlining benefits offered in its 2010 Medicare Advantage offerings.

The likelihood that Medicare Advantage payments could fall to parity with traditional Medicare does not trouble Essence, President and CEO Frank Ingari said. The company is confident that its business model would let it stay profitable while ensuring reasonably priced, high-quality care for its enrollees.

"We feel we can compete," Ingari said. "We believe in primary-care leadership and in not having adversarial relations with our doctors."

‘Aggressive’ care
A key difference between his company and many of its competitors is that Essence supports and rewards what Ingari calls "aggressive primary care." The company does this, he said, through a physician reimbursement structure that rewards primary-care physicians for aggressively practicing preventive medicine and actively managing patients with chronic conditions.

The aims Ingari describes fit with a commonly floated idea that many U.S. providers see as achieved only haphazardly, if at all, in American medicine: that properly administered preventive care and attentive management of chronic disease might entail extra front-end expense but would lower costs in the long run.

U.S. reimbursement schemes for medical providers, which largely are based on traditional Medicare payment rules, are seen by many as an obstacle to providing the kind of care Ingari describes.

The Medicare Advantage payment scheme is the main factor enabling Essence to succeed where others have not, Ingari said, because Essence has fine-tuned it to give doctors the right incentives.

Essence chose Rochester primarily because of the Greater Rochester Independent Physician Association Inc., the 784-doctor association of doctors in private practice that makes up Essence’s Rochester-area panel, Ingari said.

Essence sought out GRIPA, making first contact with the organization, said Eric Niel-sen M.D., GRIPA chief medical director.

GRIPA formed in the late 1990s as the IPA for a now-discontinued HMO that was associated with Rochester General Health System and run by Excellus BlueCross BlueShield. It retains ties to RGHS hospitals but no longer has ties to Excellus.

GRIPA became one of a few U.S. physician organizations to qualify as a clinical integration organization. Such accreditation comes from the Federal Trade Commission, which would otherwise restrict GRIPA’s ability to contract with employers and providers as a guard against violation of U.S. antitrust laws.

GRIPA doctors plan to use the clinical integration designation to market their organization to employers with self-funded insurance plans. The organization has contracts with Rochester General Hospital, its own half-owner, along with LiDestri Foods Inc. and Wellcare Healthcare Inc., a publicly traded health insurance carrier based in Louisville, Ky. Wellcare sells Medicare Advantage plans in the Rochester area, mostly dealing in plans for so-called "dual eligibles" such as nursing home residents who qualify for Medicare and Medicaid.

Question of acceptance
A question Essence faces is the extent to which the area’s Medicare Advantage population would be willing to accept the limitations that come with an Essence plan. Enrollees in Essence plans would be able to get routine hospital care only at Rochester General Hospital and Newark-Wayne Community.

Non-emergency treatment at Unity Hospital, Strong Memorial Hospital, Highland Hospital or any other area hospital would be off-limits, as would non-emergency treatment by out-of-town facilities and doctors. Subscribers also would have to choose primary-care doctors and specialists solely from GRIPA’s membership.

Ingari declined to say whether Essence might consider contracts with area hospitals other than Rochester General and Newark-Wayne.

Unity Health System considered signing a contract with Essence but declined after Essence said it would not agree to let Unity’s non-GRIPA employed physicians join the Essence panel, Unity spokeswoman Patrizia Corvaia said.

The University of Rochester Medical Center does not anticipate contracts between Strong Memorial Hospital or Highland Hospital and Essence, URMC spokeswoman Terri D’Agostino said.

How much of a downside Essence’s limited Rochester-area panel proves to be should be evident shortly. Medicare Advantage plans can begin signing new 2010 members on Nov. 15 and can continue through Dec. 31.

Limited-panel health products have been tested in this region and were not successful, said John Lynch, senior vice president of First Niagara Benefits Consulting in Rochester. Lynch made the comment with the caveat that he was not sure whether lessons from the group-oriented commercial market might apply to a Medicare Advantage market, which is largely aimed at individual purchasers.

The discontinued Rochester-area limited plans to which Lynch refers were StrongCare and the ViaHealth Plan, which were created by URMC and RGHS in the late 1990s. StrongCare ended in 2000. The Via-Health Plan ended in 2005. GRIPA first formed as the ViaHealth Plan’s IPA.