Recent and emerging health plans are navigating an industry landscape unlike any that has existed before. Emergent insurers hardships are mounting up. Oscar hasn't fared well in California. Co-ops remaining under tight scrutiny to prevent and predict failure. Oregon insurer Moda Health had temporarily been taken over by the state. To add to the laundry list of obstacles, multiple megamergers are poised to potentially change everything, 2016 has been off to an interesting start.
Experts suggest the climate is a tough one for new health insurers.
For those aiming to enter the market, “It is extremely difficult," says Ross Armstrong, healthcare expert at Kurt Salmon.
So you want to be in the pictures, eh?
One looming question, of course, is how the pending Anthem/Cigna and Aetna/Humana deals will or won’t impact the health insurance industry. The U.S. Department of Justice, together with insurance regulators from numerous states, are currently weighing the issue of whether creating two such behemoths would stifle competition.
Certainly, the insurers increasing their reach can be expected to increase their market clout and negotiating power with providers, Armstrong says.
In addition, he points out, the exchanges created under the ACA have proven a difficult market for most insurers. It’s hard to say what newcomers will face in the next few years. Even many of those who have been in it from the start are still finding their footing and reserving their commitments for 2017 until they see how this third year pans out.
“Many of the co-ops that entered the exchanges are failing because they did not have the financial reserves to get through multiple years of losses and the government is not providing the financial support that was promised,” Armstrong notes. “Most of the providers that created new insurance products, whether they were exchange products, Medicare Advantage products, or others, are losing money, but the losses were planned and budgeted for – the jury is still out whether they will be successful in the long-term.”
Bill Bithoney, managing director, chief physician executive, BDO Center for Healthcare Excellence and Innovation, also points toward this difficulty in predicting costs due to a lack of data on the unmet needs of previously uninsured members. “Insurers’ rate setting was often inaccurate, leading to losses,” he says. Compounding the issue was the fact many insurers attempted to set low rates to achieve higher enrollment. “This tactic seems to have failed for many insurers,” he notes.
Risk corridor payments also remain a wildcard for the future due to Congress’ passing of bills in 2015 and 2016 that prevented CMS from supplementing insurers to the full level planned under the ACA, Bithoney adds, resulting in CMS agreeing to pay 12.5% of the risk corridor adjustment.
“Thus, major insurers such as United and others have indicated that they lost money in the exchanges and have threatened to or decided to exit the exchanges in various markets,” Bithoney notes, adding several insurers are filing suit around the issue, including Oregon’s Health Republic, which filed a $2.5 billion lawsuit to obtain promised funds.
“Given all of this, it is likely that we will see more insurers exiting the exchange market and few will join,” Bithoney says.
What it will take to succeed
Those intrepid enough to enter the fray will have to overcome the already-established relationships between enrollees and other plans, and get enough of those enrollees to minimize the ebbs and flows of medical loss, Kurt Salmon’s Armstrong says, adding, “Typically, insurers price new plans at a level where they will experience losses that penetrate the market over the first year or two.”
Paul Gallese, senior advisor at BDO Center for Healthcare Excellence and Innovation, adds it is also critical for plans to generate and maintain adequate statutory capital, which proved a major pitfall for the failed co-ops.
Gallese and Bithoney also both stress the importance of assembling and maintaining narrow networks of low-cost, high-quality providers, which have been key for exchange survivors.
“The assemblage of narrow networks is becoming more critical,” Bithoney says. “Depending on the competitiveness of the market place in various MSA’s, insurers are putting together panels of physicians who meet certain criteria. The competitiveness of the marketplace determines how stringent these criteria can be.” For example, he says, in a market with few private insurers, the network might consist of providers in the top quintile for quality and the bottom quintile or decile for cost, while in a market with multiple insurers, “the criteria for inclusion may be less narrow and the network may be broader.”
There are stories of both successes and failures from which others may take lessons.
Oscar may prove a bit of both, because as Armstrong notes, “The market matters.”
While Oscar has become a phenomenon in its second year in New York, its expansion this year into Southern California has brought a limited number of enrollees. “Utilization is lower in Southern California and there are formidable low-cost products in the market, such as Kaiser and others,” Armstrong notes. “Therefore, it’s a much more difficult place to compete. Cost is the number one reason why people select bronze and gold plans on the exchange and Oscar does not offer the cheapest plans in Southern California like it does in New York.”