ACA implications of mergers

Centene, a major Medicaid managed care organization and the biggest single individual market insurer on-Exchange, is a potential merger target for Humana, a major Medicare/Medicaid and large group commercial insurer.

If Centene is acquired by Humana, then Molina and Wellcare must merge https://t.co/7I2qOwKNhs

— Mario Molina, MD (@drjmariomolina) May 6, 2019

My first thought when I saw this rumor is that it would make the ACA markets more morbid and more expensive for the subsidized. Centene has a corporate pattern of being a low cost, narrow network insurer. In most regions where they control the lowest silver premium, they will throw a bunch of tightly clustered plans against the wall that are fundamentally similar to each other. This is the “silver-spamming” strategy we’ve discussed a lot on this blog.

Silver-spamming reduces the premium spread between the benchmark and cheaper plans. The ACA subsidies are price linked subsidies so the benefits of a big spread go directly to the buyer of plans priced under the benchmark. We assume that the price sensitivity of buyers is a function of income and expected health status. In other words, a perfectly healthy 23 year old male making 187% FPL is far more reluctant to buy insurance at any given price than a 64 year old with cancer, diabetes and COPD earning the same amount of money if they are facing the same price.

A “spammed” market means there are few cheap deals available to the very likely to be healthy. Some of them will buy but many will not. The people in the marketplace who do buy insurance will be, on average sicker and older than if there were really good deals available.

That is the Centene worry. They understand the market and make a strategic decision to get a large marketshare of a relatively small buying pool.

Humana is just clueless on strategy. In February 2018, I presented a poster on insurer strategy and I used the Tennessee experience to illustrate the lack of a strategy used by Humana.

In 2017, Blue Cross and Blue Shield of Tennessee insured the west side of the line. In those counties they offered two Silver plans. One Silver plan was significantly more expensive than the other. On the east side of the line, Humana was the only insurer in the light yellow counties. Humana only offered a single Silver plan. That was the least expensive plan and the Benchmark plan for the no-gap counties. The counties on the west side offered much more affordable, net of subsidy, deals to healthy, subsidized individuals than the eastern counties.

In 2018, Humana bailed from the individual market. Blue Cross and Blue Shield expanded into the counties that Humana used to cover in Tennessee. In these counties, they are the only insurer. They kept their previous strategy of offering two Silver plans; a high premium and low premium plan.

Humana left the ACA exchanges at the end of 2017. They complained that the risk pools were too morbid and full of unhealthy people. This was, partially, a self-inflicted wound of piss poor pricing and plan portfolio strategy.

The ACA’s fundamental individual market design is vulnerable to whims of corporate strategy. The lived experience changes over the county line within and between states. And it can and will change every year. This is great for researchers (I have a call in 20 minutes to go over a revise and resubmit that takes advantage of this variance and I’m working on another paper draft that also uses this to my advantage) but it makes the lived experience unpredictable and resets the learning problem for people every year or two.