A few weeks ago, I wrote about a New York medical, non-hospital, practice forming an insurance company to compete on and off the Exchange.
They are offering a super narrow network on both the hospital and doctor side of the equation. This is very unusual as the doctors don’t control the hospitals so they don’t control the biggest cost driver. The hospitals won’t have an incentive to reduce their pricing or utilization patterns for the docs who they don’t employ nor profit share from. At the same time, if they can offer rates that are 10% below the market norm, they should be in a good spot to claim either the lowest Silver or second lowest Silver, so they will get a good size Exchange bump in enrollment.
In the article I was riffing off of for that post, the doctor group projected a decent membership growth path:
The company projects membership of 25,000 to 30,000 within three years. Mr. Sansted said the company’s focus on customer service will be its selling point. “There is an opportunity to wow the customer,” he said. “The smaller, nimble startups have the advantage.”
Starting up a health insurance company from scratch is an expensive and time consuming practice. The first year is usually a learning year, and the second year tends to be fix the retrospectively obvious holes in the plan that were not seen as obvious flaws in year one. The Co-Ops in PPACA are experiencing that problem as being too successful in the first year creates a lot of second year problems under an environment of policy uncertainty. For instance in Tennessee:
Community Health Alliance Mutual Insurance Co. in Tennessee, which froze its enrollment for 2015. The Tennessee co-op lost $8.5 million through Sept. 30 according to S&P. The state’s insurance commissioner, Julie Mix McPeak, called the enrollment freeze a“preventative measure to support the long-term viability” of the co-op.
If the New York group, Crystal Run Healthcare, is smart, they’ll limit their first year enrollment in each market segment to a small number so they can debug their systems without the possibility of catastrophic fuck-ups. Year 2 and Year 3 would be when I would seek to aggressively grow membership as the infrastructure and staff knowledge base to handle problems would be present.
If that is the case, and if CRH offers rates that are 10% below their competitors for similar benefit packages and actuarial value levels, then there is an interesting problem. It would be highly likely that CRH Silver plans would be either the lowest or second lowest Silver plan in their rating region. Since they are a narrow network, they’ll be very attractive to healthy, cost conscious buyers with no health issues. However their plans would only be offered to the first X thousand people to sign up. Does the subsidy attachment point get recalculated if a plan closes its enrollment?
The argument to do this is that the Exchanges are supposed to offer accessible insurance. If CRH closes enrollment after the first 10,000 sign-ups, the people who are on Exchange in Week 1 of the open enrollment would have had a chance to choose CRH. That makes sense to attach the subsidy to CRH Silver. However in Week 5 of Open Enrollment, CRH Silver is off the market, so it is no longer an available 2nd Silver, so the subsidy calculated from CRH is insufficient to “affordably” pay for the 2nd lowest available Silver.
Or am I worried about nothing, for is there a regulation saying Exchange plans can not close enrollment?
UPDATE 1: I was informed by a very knowledgable person, Rebecca Stobb, that once enrollment is capped, the subsidy is then recalculated so the Week 5 person is not screwed.