Reprinted from HEALTH PLAN WEEK, the most reliable source of objective business, financial and regulatory news of the health insurance industry.
By Patrick Connole, Editor
July 15, 2013 Volume 23 Issue 24
For months health insurers have been saying their public exchange strategies would play to their respective strengths in each market; there would be no “one-size-fits-all” approach. So it came as no shock when in recent weeks Aetna Inc. and UnitedHealth Group’s UnitedHealthcare unit each said it would exit the individual market in California, where both companies had a slim presence and decided doing business on the exchange in 2014 made little sense. Brokers say the pending departures have not changed their focus, which is waiting for Covered California, the state exchange, to make public premium rates for individuals and small groups.
“They [UnitedHealthcare] didn’t really market individually so that’s not really a big surprise. Aetna is kind of the same way. I mean, they didn’t really market a whole lot at least in California, didn’t really have much in the way of product offerings, and the fact they’re getting out of that marketplace is not really surprising to us,” Neil Crosby, director of sales, Warner Pacific Insurance Services, Westlake Village, Calif., tells HPW.
According to the California Department of Insurance (DOI), Aetna had 60,000 members covered by individual policies as of March 31, 2013, a figure that will fall to around 50,000 at the end of the year when it leaves the individual space, or under 5% of the total market. UnitedHealthcare, through its subsidiary PacifiCare, had 10,000 individual policyholders as of late 2012, which translates to around 2% of the market. These numbers compare to the dominant role WellPoint, Inc. unit Anthem Blue Cross, Kaiser Permanente and Blue Shield of California hold in the state’s individual business with a collective 87% share.
Analysts Agree With California Moves
Wall Street sees the maneuvering by Aetna and UnitedHealth as making sense given the looming start of the public exchange.
“The moves are also not surprising in light of their decisions to stay out of the California insurance exchange, at least for the first year of implementation in 2014,” Matthew Borsch, securities analyst for Goldman, Sachs & Co., said in a July 3 investor note. “Even if profitable today, we surmise that member risk selection would have negatively impacted the profitability of their respective individual books (which would have been ‘off exchange’ and subject to leakage of members away to the exchanges, particularly those eligible for subsidies) given the elimination of medical underwriting (i.e., no variation of pricing for member health status, no exclusions for ‘pre-existing conditions’) starting in 2014.”
His sentiment echoes what broker Crosby sees as the reason for the departures. “We’ve always had safety-net programs for people with pre-existing conditions, but those programs weren’t real good and typically were overpriced and didn’t deliver a great benefit in years past,” he says. “I think they are looking at it like with the guaranteed issue marketplace coming up in January and the uncertainty of what that business will look like. I think that is quite a concern to a lot of the carriers on what their experience is going to be. It’s an unknown, and these two decided they just didn’t want to go there.”
Henry Loubet, the chief strategy officer for Keenan, a California-based health care consulting and brokerage firm, and former CEO of UnitedHealthcare’s Western operations, tells HPW that a health carrier’s strategy of being all the way in an individual market, or all the way out, will likely be seen across the country in various markets. “If you’re going to be in the individual market, you need to be in all aspects of it. If you decide not to participate in the exchange, it is hard to justify being in that market,” he says.
Do the Exits Hamper Competition?
While a July 2 statement by California Insurance Commissioner Dave Jones (D) said the second exit by a major carrier would hurt competition, most California market watchers see the opposite situation.
“I think the good news is that there is going to be plenty of competition in the individual market in California. I think if you think about the market share that Aetna and United captured, it is not very much. I don’t think it is as significant as I think some people are trying to make it look like,” Lorena Ferrara, a manager at Washington, D.C., consultancy Avalere Health LLC, tells HPW. “I think he [Jones] has just been very political. I think Dave Jones in general tends to really point out insurers, try to pick a fight with them. It is sort of interesting because he doesn’t really have authority over a lot of the rate increases, so they just seem to happen regardless of what he says.”
Jones also said one of the factors behind the Aetna and UnitedHealth departures is the special tax break that California law gives to Anthem Blue Cross and Blue Shield of California, which has allowed the two companies to avoid paying $100 million in state taxes a year. “Aetna and UnitedHealthcare don’t get the special tax break provided to Anthem Blue Cross and Blue Shield, and so they faced a major competitive disadvantage in California,” Jones said.
Disadvantaged or not, the slate of health insurers taking part in Covered California is likely to see more business because of Aetna and UnitedHealth leaving. “I think the 13 carriers that are participating in the exchange are likely to pick up the lives,” Ferrara says. Regional players in the exchange are also apt to benefit, says Loubet. “You’re going to see smaller plans like Western Health [Advantage] and Alameda [Alliance for Health], and non-commercial plans like Molina [Healthcare, Inc.] get more share,” he adds.
In May, Covered California named the 13 qualified health plans for 2014 — Alameda, Anthem Blue Cross, Blue Shield of California, Chinese Community Health Plan, Contra Costa Health Services, Health Net, Inc., Kaiser, L.A. Care Health Plan, Molina, Sharp HealthCare, Valley Health Plan, Ventura County Health Care Plan and Western Health (HPW 5/27/13, p. 1). Some of the plans that Loubet mentions are much smaller players, with narrow provider networks that may attract business in the exchanges, but also leave consumers without in-network access to their existing medical care, brokers say.
Premium Rates Are Still Not Out
For Crosby and Craig Gussin, a principal at Auerbach & Gussin Insurance and Financial Services in San Diego, Calif., the talk about two majors leaving the state pales in comparison to the fact premiums for the exchange are not out yet. “Covered California has rates, but they haven’t announced them except for the 25-year-old who has a catastrophic plan or a bronze plan or a 40-year-old who has a silver plan or a bronze plan. So if you said to me, ‘I’m 38 years old, what are my rates going to be?’ I would say I have no clue,” Gussin tells HPW. The rates he refers to came out in May at the same time Covered California named the exchange carriers (HPW 5/27/13, p. 1).
Exchanges Set Off-Market Business
The exchange rates and regulations are especially important because in California, all business in the individual and small-group markets inside or outside the exchange will be benchmarked on the rates and rules within the exchange. “Everything has to be based off of what I call a tree with a bronze branch, silver, gold and platinum branch going out, but there can be different twigs off of each metal-tiered branch, so to speak. So there will be various plans within the exchange and outside the exchange in the private market,” Crosby says. “For every plan you have in Covered California, you have to have the exact same plan design in the private market at the exact same rate that you’re offering it in Covered California. But you can also have other twigs off that metallic-tiered branch in the private market as long as they are based off one of the tiers at other rates.”
The complexities of the new system will take time to adjust to, he says. “It’s going to be confusing, absolutely. There’s no way around that and that’s why I think the agents are chomping at the bit trying to get information,” Crosby adds.
Ferrara takes the view that it is not only regulators but also the health plans behind the lack of public information on rates. “In part, my sense is that it is actually from health plans pressuring the exchange to not release anything. I think there are a lot of strategies that come with the rates and when things are announced,” she says. “In some cases plans want to make sure once they’ve submitted their rates they can’t sort of change them once they see competitor rates. That is really important in the exchanges since the premiums are tied to the second-lowest silver plan. So I think a lot of it has to do with how DOI traditionally does things on when they release information and a little bit more than to do with them not being ready.”
As far as preparedness, no state is as far along as California, Ferrara adds. “By far it is the state most ready to launch exchanges. If anybody is going to be ready, California will be the leader,” she says.
http://aishealth.com/archive/nhpw071513-02
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