Re­form late­com­ers

Afraid of get­ting left be­hind, big in­sur­ers ex­pand ex­change par­tic­i­pa­tion for 2015

Modern Healthcare - - REFORM UPDATE - By Paul Demko

Oba­macare sup­port­ers got good news re­cently when Unit­edHealth Group an­nounced it wants to be a big­ger player in the in­surance ex­changes. The coun­try’s largest pri­vate health in­surer said it will in­crease its par­tic­i­pa­tion from five to 24 state ex­changes when they open for en­roll­ment on Nov. 15.

It will of­fer ex­change plans for the first time in Florida, Illi­nois, Michi­gan and North Carolina. “We think the sec­ond vin­tage will be bet­ter,” Stephen Hem­s­ley, United’s CEO, said on a call with in­vestors this month. “The third vin­tage will be bet­ter after that.”

Unit­edHealth of­fi­cials said they ex­pect to earn prof­its on their ex­change business next year, though they cau­tioned the likely mar­gin will be less than the 3% to 5% level they ex­pect in the long run.

Like Unit­edHealth, most pub­licly traded in­sur­ers took a cau­tious ap­proach in 2014 to the

“We don’t see any red flags.”

Rob Ruiz-Moss Vi­cepres­i­dent for ex­change strat­egy and ex­e­cu­tion Wel­lPoint

ex­changes es­tab­lished by the Pa­tient Pro­tec­tion and Af­ford­able Care Act. That’s partly be­cause they faced an en­roll­ment pool that was un­pre­dictable in terms of age and health sta­tus. In ad­di­tion, the in­di­vid­ual mar­ket has made up only a small por­tion of their to­tal business. The no­table ex­cep­tion was Wel­lPoint, the Blue Cross and Blue Shield-af­fil­i­ated company, which com­peted for ex­change cus­tomers in all 14 states where it does business.

“The Blues emerged as the key play­ers,” said Joseph Mar­in­ucci, an an­a­lyst with Stan­dard & Poor’s. “The pub­licly traded pay­ers clearly took more of a wait-and-see ap­proach.”

But Unit­edHealth and other pub­licly traded in­sur­ers are ex­pand­ing their ex­change pres­ence for the 2015 open en­roll­ment pe­riod, which lasts three months. Ex­perts say in­sur­ers rec­og­nize the shift to­ward a more in­di­vid­ual con­sumer-ori--

Ac­cord­ing to HHS, 7.3 mil­lion in­di­vid­u­als signed up for 2014 cov­er­age through the fed­eral and state ex­changes. The Con­gres­sional Bud­get Of­fice es­ti­mated that num­ber to swell to 13 mil­lion in 2015.

ented mar­ket, with the like­li­hood that an in­creas­ing num­ber of em­ploy­ers will have their work­ers shop for plans on pub­lic and pri­vate ex­changes. In ad­di­tion, in­sur­ers ex­pect a more bal­anced pool of health­ier and sicker en­rollees as the ex­change pop­u­la­tion grows larger and the tax penal­ties in­crease for not buy­ing cov­er­age.

Cigna Corp. plans to com­pete in eight states, three more than in 2014. Hu­mana and Aetna each are adding one state, com­pet­ing in 15 and 17 states, re­spec­tively. Other in­sur­ers are re­tool­ing their plans and rates to at­tract con­sumers. In some cases, they are nar­row­ing their provider net­works and re­duc­ing pre­mi­ums to en­tice cus­tomers who have shown a strong pref­er­ence for lower rates even if that means less provider choice and higher de­ductibles.

One rea­son Unit­edHealth and other large in­sur­ers are ex­pand­ing their ex­change par­tic­i­pa­tion is they risk get­ting squeezed out of the grow­ing in­di­vid­ual and small-group ex­change mar­ket if they stay on the side­lines too long, said David Dra­nove, a pro­fes­sor of health in­dus­try man­age­ment at North­west­ern Univer­sity. Ac­cord­ing to HHS, 7.3 mil­lion in­di­vid­u­als signed up for 2014 cov­er­age through the fed­eral and state ex­changes. The Con­gres­sional Bud­get Of­fice es­ti­mated that num­ber will swell to 13 mil­lion in 2015.

Dra­nove said the risk for late­com­ers is that con­sumers tend to stick to the health plans they are in. “We’ve learned from Medi­care Ad­van­tage, from Medi­care Part D and from pri­vate in­surance that there’s a huge amount of en­roll­ment in­er­tia,” Dra­nove said. “If you wait too long, every­body’s go­ing to be locked into their in­sur­ers.”

But even if Unit­edHealth and other pub­licly traded in­sur­ers are suc­cess­ful at se­cur­ing a larger foot­print in the ex­changes, that will rep­re­sent a small amount of their over­all business. An anal­y­sis by Bar­clays found that if Unit­edHealth at­tracts 10% of ex­change cus­tomers in the 24 states where it plans to com­pete and that business turns a 3% profit, it would boost earn­ings per share by only 2%.

In­sur­ers that took a con­ser­va­tive ap­proach to the ex­changes for 2014 may be at a com­pet­i­tive dis­ad­van­tage in the com­ing open en­roll­ment be­cause cur­rent ex­change plan mem­bers who take no ac­tion will be au­to­mat­i­cally reen­rolled in the same plan (or the clos­est com­pa­ra­ble prod­uct of­fered by their in­surer) for 2015. “While that is a big pos­i­tive for in­cum­bents, it can be a big neg­a­tive for new en­trants like United, as the to­tal mar­ket avail­able to new en­trants will be much smaller than oth­er­wise would have been the case,” Citi Re­search an­a­lysts wrote.

The ex­panded par­tic­i­pa­tion of the coun­try’s largest com­mer­cial in­sur­ers has con­trib­uted to in­creased com­pe­ti­tion on the ex­changes. Last month, HHS an­nounced that in 44 states where com­plete data were avail­able, 25% more in­sur­ers will be sell­ing plans on the ex­changes for 2015. That in­cludes nine states where there will be at least three new com­pa­nies of­fer­ing plans. The only state where com­pe­ti­tion de­creased is Cal­i­for­nia, which still will have 10 in­sur­ers sell­ing ex­change prod­ucts.

HHS Sec­re­tary Sylvia Mathews Bur­well pointed to the in­creased com­pe­ti­tion as a sign that the new mar­ket­places are thriv­ing de­spite the se­vere tech­no­log­i­cal prob­lems

that plagued Health­Care.gov ini­tially and con­tin­ued to hob­ble some state-run ex­changes through­out open en­roll­ment.

But Mark Pauly, a health­care economist at the Univer­sity of Penn­syl­va­nia, cau­tioned that hav­ing more in­sur­ers par­tic­i­pat­ing is not nec­es­sar­ily a sign that the ex­changes are suc­ceed­ing. For the first three years, in­sur­ers can rely on the fed­eral risk-cor­ri­dor and other mech­a­nisms es­tab­lished by the health­care re­form law to pro­tect them from sig­nif­i­cant losses if they at­tract a sicker, more-ex­pen­sive en­roll­ment pop­u­la­tion than they an­tic­i­pated. Hu­mana, for ex­am­ple, has pre­dicted that it will re­ceive be­tween $575 mil­lion and $775 mil­lion through those pro­grams for 2014 Oba­macare cus­tomers. Those risk pro­tec­tions, plus the in­surance in­dus­try’s de­sire to be seen as sup­port­ive of the re­form law, are likely en­tic­ing the pub­licly traded in­sur­ers to ex­pand their par­tic­i­pa­tion in the ex­changes, he said.

“It’s very much in an in­fant stage,” Pauly said. “A lot of peo­ple are help­ing to care for this baby. The real test will be when it heads off to kinder­garten.”

In­sur­ers ex­pect the risk pool to con­tinue to im­prove, less­en­ing the need for such risk-pro­tec­tion mech­a­nisms.

For the first three years, in­sur­ers can rely on the fed­eral risk-cor­ri­dor and other mech­a­nisms es­tab­lished by the health­care re­form law to pro­tect them from sig­nif­i­cant losses if they at­tract a sicker, more-ex­pen­sive en­roll­ment pop­u­la­tion than they an­tic­i­pated.

The emer­gence of Unit­edHealth as a big­ger ex­change player is likely good news for con­sumers. The sec­ond-cheap­est sil­ver plan in states that used the fed­eral ex­change would have been 5.4% cheaper in 2014 if Unit­edHealth had been com­pet­ing, ac­cord­ing to a study con­ducted by North­west­ern Univer­sity and Mas­sachusetts In­sti­tute of Tech­nol­ogy re­searchers that will be pub­lished in the Amer­i­can Jour­nal of Health Eco­nomics.

The rate for the sec­ond-cheap­est sil­ver plan in each mar­ket is im­por­tant be­cause it’s used as the bench­mark for cal­cu­lat­ing the amount of fed­eral pre­mium sub­si­dies.

In­di­anapo­lis-based Wel­lPoint gained lots of mem­bers as a re­sult of its ag­gres­sive en­try into the ex­changes in 2014, adding 769,000 cus­tomers dur­ing the first six months of the year, ac­cord­ing to company of­fi­cials. That was more than 10% of all ex­change en­roll­ment na­tion­ally.

Rob Ruiz-Moss, Wel­lPoint’s vice pres­i­dent for ex­change strat­egy and ex­e­cu­tion, said his company’s ex­pe­ri­ence val- idated the decision to par­tic­i­pate broadly in the ex­changes. The risk pool in terms of age and health sta­tus gen­er­ally met Wel­lPoint’s ex­pec­ta­tions, Ruiz-Moss said. But be­cause so many signups poured in dur­ing the fi­nal fren­zied weeks of the open en­roll­ment pe­riod, the company’s ac­tu­ar­ies had only a few weeks, and not much de­mo­graphic data, for cal­cu­lat­ing 2015 rates be­fore Wel­lPoint had to file those new rates.

“There’s still a lot of young business on the books, but at this point, we don’t see any large-scale con­cerns,” he said. “We don’t see any red flags.”

Wel­lPoint is re­tool­ing its web­site to make it eas­ier for in­di­vid­ual-mar­ket con­sumers to sign up for cov­er­age out­side of the ex­changes. It’s also bol­ster­ing its Span­ish-lan­guage out­reach and fo­cus­ing more on mo­bile mar­ket­ing.

Aetna signed up nearly 600,000 ex­change cus­tomers dur­ing the first open en­roll­ment. Roughly two-thirds of those new cus­tomers se­lected a plan dur­ing the last two months of the en­roll­ment pe­riod, mean­ing Aetna had lit­tle uti­liza­tion data on which to base its 2015 rates. Through at­tri­tion, the Hartford, Conn.-based company ex­pects to end the year with roughly 500,000 cus­tomers—a 17% drop-off rate. That at­tri­tion is fairly typ­i­cal for what in­sur­ers are see­ing.

Cigna ex­pects to have 300,000 in­di­vid­ual-mar­ket en­rollees at the end of this year. Of those, 125,000 are in ACA-com­pli­ant plans, the vast majority of which were pur­chased through the ex­changes in the five states where Cigna com­peted for cus­tomers.

Cigna CEO David Cor­dani told in­vestors in July that dur­ing the first quar­ter of the year the company’s ex­change cus­tomers skewed older and more ex­pen­sive than an­tic­i­pated. But the risk pro­file im­proved dur­ing the sec­ond quar­ter as en­roll­ment ac­cel­er­ated and more young peo­ple signed up. “We’ve po­si­tioned this business to be man­age­able,” Cor­dani said. “We didn’t ex­pect to make money. We’re not mak­ing money.”

Molina Health­care, which pri­mar­ily has been in the Med­i­caid man­aged-care business, opted to com­pete for 2014 in ex­changes in nine of the 11 states where it does Med­i­caid business. The Long Beach, Calif.-based company signed up

roughly 23,000 ex­change cus­tomers. More than 10,000 of those new mem­bers came through the Cal­i­for­nia ex­change, where the in­surer com­peted in four of the state’s 19 re­gions. The company’s mar­ket share in each re­gion ranged from less than 1% to 6.4%.

Lisa Ru­bino, a se­nior vice pres­i­dent at Molina, said en­roll­ment was be­low ex­pec­ta­tions for the first year but that her company is not dis­cour­aged. It again will be com­pet­ing in nine states for 2015 cus­tomers and is adding coun­ties in some states. In some ex­change mar­kets, Molina is adding lower-priced bronze plans or ex­pand­ing its provider net­works to com­pete more ef­fec­tively.

Molina’s big­gest change for the next open-en­roll­ment win­dow will be in pric­ing, of­fer­ing lower rates in most states, Ru­bino said. In Wash­ing­ton state, where Molina cap­tured just over 2,000 cus­tomers in 2014, the company will hold its pre­mi­ums flat for 2015. In Cal­i­for­nia, Molina’s rate in­creases will range from an av­er­age of 0.6% in one re­gion to 3.1% in another.

Ru­bino said Molina priced too high for 2015 and is now ad­just­ing. “We an­tic­i­pated a sicker pop­u­la­tion, and we’re not see­ing that,” she said.

Not all pub­licly traded in­sur­ers are ex­pand­ing their ex­change foot­print for 2015. Wood­land Hills, Calif.-based Health Net com­peted in three states—Ari­zona, Cal­i­for­nia and Ore­gon—in 2014. In Cal­i­for­nia, Health Net cap­tured roughly 20% of the mar­ket, com­pared with 3% be­fore the es­tab­lish­ment of the ex­change. In Ari­zona, Health Net went from vir­tu­ally no mem­bers in the in­di­vid­ual mar­ket to 30% of that mar­ket at the end of June.

Mean­while, Health Net is ex­it­ing the Ore­gon ex­change mar­ket be­cause of low mar­ket pen­e­tra­tion there. That will en­able the company to con­cen­trate on the Cal­i­for­nia and Ari­zona ex­change mar­kets, said Jen­nifer Moore, Health Net’s vice pres­i­dent for in­di­vid­ual mar­kets.

One sur­prise in the first year was that 15% to 20% of new Health Net mem­bers didn’t pay their pre­mi­ums, Moore said. To fig­ure out why, Health Net con­ducted fo­cus groups with those con­sumers who signed up but didn’t pay.

In re­sponse to the feed­back, Health Net stepped up its com­mu­ni­ca­tions with mem­bers im­me­di­ately after they signed up for a plan to en­cour­age them to make pay­ments. The company also redesigned its in­voices to make it clearer they were bills.

Now Health Net in­tends to make five con­tacts with all 2014 cus­tomers about re­new­ing their plans, in­clud­ing send­ing a per­son­al­ized video ap­peal to those cus­tomers who pro­vided e-mail ad­dresses. The company also aims to ex­pand its out­reach to His­panic res­i­dents, fea­tur­ing Span­ish-lan­guage ra­dio ads, bill­boards and hand san­i­tiz­ers given out in gro­cery stores.

“We’re very pleased with the out­come for year one,” Moore said. “We knew it was go­ing to be a pretty bumpy im­ple­men­ta­tion.”

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