Lifestyle insurers in MCO markets: how do they work?

The Exchanges have encouraged new firms to enter the individual insurance market.  This is a good thing as we need to experiment with service delivery systems.  One of the experiments have been either new insurers or new subsidiaries of insurers entering the market with plans and marketing schemes that are heavily technology focused and optimized to give a good customer service experience.

Harken Health (part of United Healthcare) is attempting to drive down costs by a combination of no cost-sharing PCP visits at company owned clinics and lifestyle options.  They’re expending their footprint in Atlanta and Chicago.

Harken Health currently operates four health centers in Cook County, Illinois, where the insurer plans to open another six clinics by next year. Harken currently has six clinics in the Atlanta area, where it plans to open two more by 2017.

In addition to primary care, the health centers also offer everything from sessions with “health coaches” to classes in nutrition, tai chi and yoga.

Oscar, based in New York, has been losing money. They are requesting large rate increases to cover their losses:

Oscar is proposing to increase rates between 8 percent and 30 percent on individual plans, according to a letter sent to brokers….

Oscar’s strategy has been to use their web/mobile technology platforms to be the hip/cool/disruptive insurer for the next generation.

The market segment that both of these plans seem to be aiming for are people who are fairly young, active, technologically savvy and very healthy.

There is no problem with insurers segmenting a market and chasing one segment really hard.  Even with risk adjustment where plans that are comparatively much healthier make transfer payments to companies whose population are comparatively sicker, plans can make money.  Oscar in 2015 had massive risk adjustment liabilities.  Slightly more than a quarter of their earned premium revenues went out the door as risk adjustment payments.  This indicates that Oscar was disproportionately signing people up who were very low utilizers and were coded as very healthy.  This could be fine.  Given how Harken is marketing and pricing itself in the Chicago market, it seems likely it is attracting a similar type of risk profile (young and very healthy)

What I am struggling with is how do these types of insurers compete in markets where there is a large Medicaid Managed Care like Exchange insurer.  In Chicago, Centene Ambetter’s unit is the dominant low cost insurer.  It has a narrow network, Medicaid like HMO product as the 2nd Silver.  An HMO will self select for healthier people than a PPO, and a very narrow network will select for healthier people than a not so narrow network.   For a 40 year non-smoker, that plan costs $198 while the least expensive Harken plan costs $279.  That is a subsidy gap of $81.  Centene has been paying in significant risk adjustment transfers but it has been profitable.

Centene’s risk adjustment payments as well as plan design strongly support the idea that they are attracting a very healthy population.  They are attracting the people who have a low willingness to pay but a high subsidy due to low to medium income.  They are getting people who want insurance for either the stress relief of having insurance to take care of moderate sized problems or they want insurance to avoid paying the mandate.

So if Centene is attracting healthy people, Harken is attracting healthy people and both are paying large risk adjustment transfers, why is Centene making money and Harken probably losing money in Chicago?  Assuming a hypothetical individual could be covered by both insurers for the same treatment, Centene is paying significantly less per service than Harken because Centene’s basing its provider contracts on Medicaid rates instead of commercial or Medicare rates.

Centene and other Medicaid like Exchange providers are targeting roughly the same type of population but since they are much cheaper post subsidy, they are probably getting a far larger population to amortize their fixed costs over plus any service that they do need to pay for, they are paying for at a lower rate.

From here, I am having a hard time seeing how plans that have a “lifestyle” component can compete against Medicaid like Exchange providers.  Maybe it is different off-Exchange where everyone is paying full premium and “cheapness” is not a strong selling point.