SWPA under AHCA because of UPMC

Southwestern Pennsylvania is one of the few regions on Healthcare.gov that might be better off under the current Republican AHCA than the ACA. Most regions are worse off including my new home state of North Carolina. But what is different in Southwestern Pennsylvania?

Western Pennsylvania has very low cost insurance. Bronze plans are available from anywhere for free post age based subsidy less than $50 after the subsidy is applied up to about age 53 with a 3:1 age band. After that Bronze coverage gets expensive. Below is a picture of the post-subsidy prices for a 21 year old for the least expensive Bronze plan from my former home county (Allegheny) to Balloon-Juice World Headquarters in Bethany, West Virginia and then across the Ohio River to another soccer field.

So what’s happening? My former employer, UPMC, is what’s happening. Everything I’ll say can be found in public files. University of Pittsburgh Medical Center is both an insurer (where I worked) and a hospital/doctor owning entity. It is getting to be a big deal and it is throwing its weight around in a successful attempt to fracture the Southwestern Pennsylvania payer market.

They offer three separate networks in Western Pennsylvania. I spent eight months of seventy hour weeks in both 2013 and 2014 building and maintaining those networks so I am fairly familiar with them. One network (Premium) is the broad network that looks a lot like the standard commercial network. UPMC pays providers a fairly high rate. It is a network used in the entire UPMC service area of Western and central Pennsylvania. If we look at the network pricing for the West Virginia and Ohio counties, the insurers probably pay their docs and hospitals similar rates as UPMC Premium.

So Premium is not the story. The story is in the the other two networks. The first network is “Select.” It is a narrow network based on UPMC owned hospitals and doctors plus a couple of community hospital chains in the counties surrounding Pittsburgh. This network was introduced in 2014 as a low cost network. It is offered in five counties in and around Pittsburgh. The other network is Partners which is made up of overwhelmingly UPMC owned physical health providers with a few gap fillers. It is offered in counties where UPMC owns a hospital including Allegheny County where Pittsburgh is located.

Both of those networks pay very low rates to their providers. So that helps in producing low premiums.

Additionally, UPMC has been losing money on Exchange. They projected to lose money in 2017 on the individual market when they set their rates. They have not been losing as much money as Highmark but they have under-priced their products for strategic reasons and then adopted, in my opinion, a non-optimal pricing strategy that creates a smaller and sicker risk pool.

So there is a combination of a company that has a narrow, low cost network plus an intention to buy market-share by selling products below cost. That is why Southwestern Pennsylvania has a chance of being not significantly worse off on the private individual market under AHCA while many other regions are guaranteed to see many people far worse off on the individual market.

It is an unusual combination of events that are unlikely to be widely replicated. As long as UPMC is offering either or both of Select and Partners network at current provider fee benchmarks, Southwestern PA will be one of the lower cost regions in the country but that discrepancy would have narrowed slightly as UPMC increases premiums to become profitable on Exchange.