A recent Associated Press story reported that two health plans with deep managed Medicaid experience, Molina and Centene, have been successful with their commercial exchange offerings. The experience has been sufficiently positive that Molina is considering expanding into two more states next year.
Contrast this with the mainstream of commercial plans that have tended to be considerably pricier than the plans with managed Medicaid roots. A recent McKinsey & Company report noted that in 41 states, insurers in the individual markets, including exchanges, lost money. Several have said that they’ll reduce their participation in the exchanges.
UnitedHealth Group has been the most visible of the malcontents, announcing last month that they expect to lose about $650 million on exchange health plans in 2016. And that in 2017, they will withdraw from most of the 34 exchange markets where they currently have offerings. Stephen Hemsley, United’s CEO, cited the smaller markets and higher per patient costs in the exchanges relative to United’s larger book of business of employer groups.
Humana also announced that it would adjust exchange plan offerings and exit certain markets in 2017 to become more profitable. Its first-quarter earnings fell by 46%, in part due to a 21% drop in individual policies, including those on the exchanges.
Why Molina and Centene Outperform Other Commercial Exchange Plans
In Forbes, analyst and former health plan executive Bob Laszewski delved into why Molina and Centene outperformed the commercial plans. Both built their commercial exchange offerings on established Medicaid market presences, networks, and brand recognition, recruiting the 75% of low-income eligibles necessary for a sustainable risk pool balance of healthy and unhealthy participants. The populations they sought on the exchanges are familiar with their brands, and accept narrower networks in exchange for more reasonable premium contributions. More traditional plans sought higher income enrollees, who were more demanding and in shorter supply on the exchanges.
But there is another explanation as well. Plans like Molina and Centene, grounded in long managed Medicaid experience, have of necessity learned to manage risk more effectively than commercial plans. Medicaid plans receive a monthly rate for each enrollee, and then manage within that set budget. To accomplish this, they have become adept at understanding their populations’ clinical and financial risks, and putting medical management approaches into place that can mitigate those risks. In other words, when a plan with Medicaid experience moves into a fully insured (at-risk) commercial plan space, it is more likely to succeed.
The commercial plans, not so much. Most commercial plans have not been required to adhere to rigorous risk management disciplines and, if anything, their incentives are different. They can go light on large case management, for instance, allowing the costs of high-intensity patients to balloon, knowing that when costs exceed premium, they can recoup those costs through subsequent premium increases. Because of their ability to “play the increases forward,” their incentive has been to increase rather than manage cost. Employers and unions, assuming that costs can’t be controlled, simply pay more. And more. Unendingly.
Molina’s and Centene’s success on the exchanges betrays the lie that healthcare costs can’t be managed, and that their competitors’ 30% higher premiums are necessary to remain in the exchanges. It is possible for the mainstream health plans to manage the risk but, over decades, they have not needed to exercise this expertise. Said another way, the important truth is that, under current rules, managing risk is not necessarily in their interest.
Letting plans that have lost money raise rates to their liking is the wrong answer. Instead, participation in the exchanges should require risk management within certain limits, based in part on evidence that others have been successful within those same constraints.