UnitedHealth Group’s experimental health plan subsidiary is pulling out of the Affordable Care Act exchange markets in Chicago and Atlanta after losing nearly $70 million in the first six months of 2016. And its founding CEO, who spearheaded the plan’s primary care-focused benefit design, has been replaced by a new leader….
Harken offers unlimited primary care and behavioral visits at no charge when members receive those services at its staff-run clinics. Other services are subject to a relatively high deductible, depending on the ACA metal tier. But members pay no coinsurance after the deductible is met, other than copays for prescription drugs. And beyond primary care, members have access to UnitedHealth’s broad national network of hospitals and specialists.
They were losing over $150 Per Member Per Month (PMPM). That is insanely high losses.
I have not been able to figure out who insurers who are pitching high touch products in markets that are dominated by Medicaid like Exchange carriers can make it work. We looked at this problem in May:
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 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.
Harken had a front end that was very attractive to people with chronic conditions. Unlimited, no cost sharing PCP visits are far more valuable to an individual with health problems then they are to someone who is healthy. I would use unlimited PCP visits to address soccer injuries and perhaps an upper respitory infection per year. An individual with complex cardiology conditions would use the PCP visits as an entry way to far more expensive specialist and in-patient care. And since Harken is using United Healthcare’s national insurance network, they are paying a high cost per service once their members leave the PCP clinic.
Secondly, Harken was competing in Chicago and Atlanta. Both regions have Centene/Ambetter offering Silver Spam strategies where the Centene offerings were the only affordable offerings to healthy and low income buyers. Centene’s strategy drove down the average cost of premium in the region which means the risk adjustment transfers that Centene was making to other carriers would be insufficient to cover high cost care.
I could not figure out how Harken could make money in markets where there was a Medicaid like Exchange carrier. And now we find out that they could not figure out how to make money either.