As more individuals gain access to public exchanges over the next five months of open enrollment, stakeholders and market analysts will be watching closely to see which publicly traded carriers that put their subsidy-eligible members up for grabs in the new marketplaces will lose the most business. UnitedHealth Group, which is in only five exchanges, has the most customers who will be forced to choose new carriers in order to get subsidized coverage through exchanges.
“[For] A company like United, which has a large block of individual business that has decided not to play in the public exchanges, what’s going to happen is a number of their members are going to realize that if they switch to another carrier they’ll get part of their premium subsidized by the federal government — and United is well aware that they are going to lose part of this membership,” Steve Zaharuk, senior vice president for Moody’s Investors Service in New York, tells HPW.
Where these customers go in the public exchanges is an open question, but Stifel Nicolaus securities analyst Mark Kelly tells HPW that a good chunk of the business will likely end up with local Blues plans, other publicly traded competitors or even carriers operating under CMS’s Consumer Operated and Oriented Plan (CO-OP) program, depending on the competition in each state.
“Local Blues plans will certainly [be an option]; they seem to be participating on a pretty wide scale on these exchanges. One reason is they’re actually there, and two, they have a lot of local brand recognition so they should pick up a lot of those new lives. And you know there are probably going to be new CO-OPs and new entrants like Evergreen Health here in Maryland with a very unique model, which is handling open enrollment like a political get-out-the-vote campaign,” Kelly says. “Those smaller plans will certainly grab some percentage of those new entrants as well.”
Show-Me State Has Few Carriers
Broker John Osborn, agency owner and operator of Osborn & Associates in Springfield, Mo., tells HPW that the individual market in his state is in flux, considering the technical issues that have thwarted people from shopping and buying individual policies thus far on Missouri’s federally facilitated exchange (FFE). Missouri has only two carriers offering individual products on its exchange: Aetna Inc.’s Coventry Health Care Missouri unit and WellPoint, Inc.’s Anthem Blue Cross and Blue Shield unit, which is the dominant carrier in the state’s individual market. “There are several insurance carriers no longer offering products for qualified health plans next year — like for example [Centene Corp.-owned] Celtic of Chicago, which pulled out of the market and now a bunch of their members need to make a move,” he says.
There are four carriers in the state’s private market: Anthem, Assurant, Coventry and Humana Inc. “United is not in the market for either private or public. Celtic pulled out and [Springfield-based] Cox HealthPlans pulled out locally,” Osborn says.
Securities analyst Carl McDonald of Citigroup Global Markets said in an Oct. 8 research note that only 15% of UnitedHealth’s individual members will be able to buy an exchange plan from the carrier for 2014. He says United is most vulnerable to individual-member losses in Missouri, along with Arizona, Florida and Texas. Overall, McDonald’s analysis assumes UnitedHealth could lose $1 billion in revenue due to this, figuring only around 140,000 of its 920,000 individual policyholders (using 2011 data) would be able to buy exchange products for 2014. “That leaves 780,000 people that won’t be able to purchase a United exchange product next year. Let’s say half of these members are eligible for subsidies and decide to buy a subsidy-eligible product from another carrier. That would cost United 390,000 individual lives. At average revenue of $220 per member per month, that translates into lost revenue of about $1.03 billion,” he said.
Zaharuk says WellPoint, a big player in the individual market through its for-profit Blues plans, had the same strategic decision to make as UnitedHealth, but chose to go after membership and take part in 14 exchanges. That ties them with Humana as the second-most active publicly traded insurer in the public marketplaces, behind only Aetna, which is participating in 17 states.
Health Net, Inc. also is “taking some risk,” he says. That insurer “doesn’t have a lot of individual membership but they’ve been very aggressive especially in certain parts of California in building an exchange product and a network to service that population that will be joining the exchanges.”
The decision to be active or absent from the exchanges is not a multi-year choice, Zaharuk cautions, saying UnitedHealth and others can certainly get into the game more aggressively in 2015 after examining claims data and other information that could lessen the risk. “If the [Affordable Care Act] changes a bit or their expectations weren’t correct they’ll come back to the business,” he says.
A possible change could be to allow some pricing flexibility to attract younger lives in the exchanges. “You hear a lot in the news where people are looking at these benefit packages that they are buying and it’s one-size-fits-all so it has all these additional benefits. For example, does a 60-year-old need maternity benefit coverage?” Zaharuk says. “You could have a benefit package for a younger individual with less benefits and make the price point more attractive to them and maybe enforce a stricter penalty too.”
Reprinted from HEALTH PLAN WEEK, the most reliable source of objective business, financial and regulatory news of the health insurance industry.
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