What If They Threw an Exchange and Nobody Came?

Bill Boyles writes in his HealthPlan Markets newsletter –

Health plan chains (multiple insurance companies with a single owner) gave notice that they will not even bother to apply to participate in health exchanges in half of all states. The revelation at investor conferences is a warning that despite all the political verbiage most private carriers do not need (or want) a large book of business in the small group and individual markets, and have no intention of losing money to sell rich benefits to people with higher-than-average underwriting risk. The timing is no coincidence: many states are still deciding how much price competition they want to impose on the assumption that they will have lots of plans to pick from. But it’s bad news for Blues plans and Wellpoint, often the carriers of last resort.

Source: HealthPlan Markets. See also The Associated Press‘ take on this issue.

Comments (15)

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  1. Buster says:

    That’s what many people have been worried about all along. The whole reason to require health coverage and offer generous exchange subsidies was to mitigate the risk of adverse selection. But for people in moderately poor health, the temptation will be too much to resist. The people who want the most generous health plans will also be those who tend to use the benefits. Subsidies will not be sufficient to overcome the perverse incentives.

  2. Evan Carr says:

    The government likes to incentivize behaviors, where is my incentive for keeping healthy and seeing a doctor an average of 1-2 times per year and an ER visit every 3 or more years? I bet you my spoadic visit for medical care will be alot more expensive in 2014…

  3. Andrew O says:

    It will be interesting to see how this unfolds as more states start coming to decisions. I am afraid that this will increase costs for those already insured.

  4. Tyrus says:

    I think many of these states will end up neglecting the opportunity to join. Which seems like a pretty good idea.

  5. Ron Bachman says:

    Now is the time to start a new insurance company selling to healthy youth and providing health incentives to those wanting to stay and get healthy. Without the legacy of unhealthy populations and avoiding through plan design those who are not interested in healthy choices, a new company can create a free-market option through private exchanges that would show how costs can be reduced for those taking personal responsibility for health and healthcare. Utilize ACAs catastrophic plan option (there would be no 3-1 price compression) and the 30% health status allowance for incentives (50% for non-tobacco use). Walla…a cost effective choice where the single risk pool is of those who are responsible users of health insurance benefits.

  6. Frank Timmins says:

    This is not unexpected of course. In fact, I would have been surprised if there was any significant interest in participating in the exchanges on the part of carriers. There is a bit of a silver lining, and that is the fact that the Blues will wind up getting the bad risks.

    Ron Bachman, I am curious about your suggestion of a small carrier being able to “utilize ACAs catastrophic plan option”. I’m not sure what you mean by this. Can you elaborate?

  7. Henry GrosJean says:

    Not only the carriers don’t want the risk, but the applicants will be concerned as well. All applications first go to Homeland Security and then to the IRS. Small business are required to pay 90 days in advance of the effective date and are required to go automatic bank draft thereafter. In AZ our governor picked one of the state plans for the essential health benefits. Due to some legislation passed in 08 and due to choosing this plan all individual policies and small group policies have to cover Autism from day one!

  8. John C Parker says:

    Ron – many of the rules of federal health reform (P PACA) apply to plans in the Individual and Small Group market. Thus, a new company offering out of “Exchange” plans would face the same requirements. e.g. must include EHB and the no more than 3 to 1 in age 21 to age 64 premiums.

    P PACA’s so called catastrophic plan for the 30 and under “invincibles” may not materialize and even if it does in some states – premium will still be quite expensive.

  9. Don Levit says:

    If the employee is unable to purchase an “affordable” “qualified” plan from his employer, the employer faces a tax of either $2,000 per employee or $3,000 per employee , after the first 30 employees, whichever is greater.

  10. John C Parker says:

    Don – the tax is based on a person receiving a federal premium subsidy, which BTW is a refundable tax credit.

    Thus, since no subsidy was received – no penalty is due from the ER.

  11. H. James Prince says:

    And all this time I thought that I had to choose to consume healthcare – my mistake. I don’t like my social and business interactions forced upon me by the government.

  12. David Hogberg says:

    This is interesting, but, what are the chances that the government won’t force insurers to sell their products on the exchanges? Since most of ObamaCare has been about 1. Forcing people to do what they don’t want to; and 2. Big corporate interests letting themselves be willingly led to slaughter, I think the chances that they’ll be forced to sell on the exchanges are just shy of 100%.

  13. cbohanon says:

    Consistent with Obamacare a ruse to take us to a single-payer system. Regulate, bankrupt insurance via regulation and then declare the market doesn’t work!

  14. Ron Bachman says:

    The ACA Catastrophic plan is a high deductible low cost option available only to those under age 30 and those who can not find insurance at a cost below the 8.5%(?) threshhold. The population is likely to be mainly those uner 30 and a few older aged individuals with incomes above 400% that dont qualify for a subsidy. These are available only to individuals.

    There is the potential for a new small group company that markets and develops its business on healthy employees. If the only products sold required up to 30% rewards for health status (BP, Cholesterol, BMI, etc), the single risk pool for that company would be healthy lives and those unhealthy lives working to get health and maintain stability of any C&P condition. It uses the silver lining in ACA to provide for those who take personal responsibility. Without the legacy members of exisitng carriers, such an approach would stand out as unique and profitable for any investors and benefit the responsibile policyholders.

  15. John C Parker says:

    Ron – couple things which are a part of P PACA:

    + New small group company must meet various requirements to become a QHP.
    + Exception is in P PACA for new Co-Op (non profit plans) and they get funding to use in lieu of having required reserves. However, “Cliff” decisions took away all future funding – thus those who got some are the only ones that will be available.
    + The 30% you mention, which is up to 30% of single premium, is for an ER to give to EEs, who are on their GROUP plan and have enrolled to participate in the firms Wellness program. IMHO most ERs, who now are asking EEs to contribute more towards their medical ins. coverage, are not going to be able to knock off much or to put dollars into the EEs HSA.

    Interested in the source of the info you have been sharing.