First, benefit plans offered on Exchanges are evolving rapidly, with smaller, closed networks getting a lot more traction. A recent report from Avalere found:
from 2014 to 2016, the percentage of plans offering PPO networks dropped from 39 percent to 27 percent. This represents a 31 percent decline over the three year period. Meanwhile, use of health maintenance organization (HMO) and exclusive provider organization (EPO) networks has increased.
This isn’t surprising; health plans get better reimbursement, tighter relationships, and fewer management with small networks. Expect this trend to continue.
But not without major challenges from regulators, health care providers, and consumers. In New Jersey, the dispute between Horizon Blue Cross/Blue Shield and a big hospital over Horizon’s value-based care initiative and that initiative’s impact on St Peter’s University Hospital is now before a judge. Essentially, St Peter’s isn’t on Horizon’s Tier One provider list, which means consumers would have to pay more for care there. They don’t like that, and want in. Horizon claims St Peter’s is not committed enough to population-based care.
Expect these disputes to become commonplace.
Next, Co-ops – those start-up health insurance programs designed to add competition to the marketplace, are failing left and right. Clear evidence that PPACA is failing, and another example of government’s inability to get anything right. RIght?
In reality, this Congress screwed the Co-Ops.
Long story short, the start-up Co-Ops were supposed to get financing in part from a risk corridor program that was part-and-parcel of PPACA. The idea behind the arrangement was to help small players get started so they could provide an alternative to the behemoth health plans dominating our world.
Then Congress intervened. Here’s Louise Norris:
On October 1, 2015 the federal government notified health insurance carriers across the country that risk corridor payments from 2014 would only amount to 12.6 percent of the total owed to the carriers. The program is budget neutral as a result of the 2015 benefit and payment parameters released by HHS in March 2014. And the “Cromnibus bill” that was passed at the end of 2014 eliminated the possibility of the risk corridors program being anything but budget neutral, despite the fact that HHS had said they would adjust the program as necessary going forward. But very few carriers had lower-than-expected claims in 2014. So the payments into the risk corridors program were far less than the amount owed to carriers – and the result is that the carriers essentially get an IOU for a total of $2.5 billion that may or may not be recouped with 2015 and 2016 risk corridors funding (risk corridors still have to be budget neutral in 2015 and 2016, so if there’s a shortfall again, carriers would fall even further into the red).
Many health insurance carriers – particularly smaller, newer companies – are facing financial difficulties as a result of the risk corridors shortfall. CO-OPs are particularly vulnerable because they’re all start-ups and tend to be relatively small. All of the CO-OPs that have announced closures since October 1 have attributed their failure to the risk corridor payment shortfall.
So, what happened is entrepreneurs based their business plans in part on the risk corridor program. Congress, in its infinite wisdom, decided to not deliver on its original commitment, thereby killing off competition in many key markets.
One analyst has what I think is a pretty insightful take on non-financial enrollment challenges faced by new entrants to the health plan markets:
“I think the problem with [insurers not doing business profitably on public exchanges] is that it takes time…for them to mature. It is the nature of the insurance business when there is a brand new insurance line, where people had no insurance previously. There needs to be a motivating factor to buy insurance,” which may come when people face more significant fines in 2016 for not having coverage.
— Vishnu Lekraj, securities analyst for Morningstar, Inc. in HealthPlan Week
For a thoughtful piece on just what it takes to start an innovative health insurance plan/company/business, read this. A key takeaway is it is not just about financing…
What does this mean for you?
Health plans are evolving rapidly, painfully, and some successfully. It’s not pretty but it is necessary.