Another co-op acting oddly?

Charles Gaba is doing his regular job of collecting all initial rate filing requests. He looks at New Mexico and something is odd in the filing. The largest individual market insurer (Molina) and two smaller carriers all initially filed effectively flat rates. To me, this implies that the 2019 premiums were slightly overpriced and we should expect to see Medical Loss Ratio (MLR) rebates of decent to significant size in September 2020. However, the second biggest carrier by enrollment in the ACA individual market, New Mexico Health Connections (NMHC), a co-op, filed for a 30% rate increase.

I wonder if NMHC will be a going concern in 2021.

My question comes from a pricing perspective. Molina has been an aggressive spread strategy player in New Mexico. They have a low cost, Medicaid-esque network that allows them to significantly underprice insurers that pay their provider networks something closer to standard commercial rates instead of significantly under those rates. Molina’s pricing advantage is especially notable for their Bronze plan in 2019. Their 2019 Silver plan is only $8 below benchmark for a single 40 year old non-smoker so it is price superior but not price dominant for the 138-200% FPL group that makes up a huge chunk of the individual market. NMHC has a slight pricing advantage on Gold compared to Molina. Blue Cross and Blue Shield priced 2019 a bit above NMHC.

That all changes in 2020

I am making some very quick estimates of the premium spread changes in Bernalillo County, New Mexico, the largest county in the state. I am assuming no change in plan offerings by any current 2019 carrier and flat rates for all non-NMHC carriers.

Assuming no other changes, Molina has a dominant pricing position. They would have the cheapest Bronze, Silver and Gold plan by a significant margin. A significant portion of the subsidized population would see a Molina plan that has a zero dollar premium. That is likely to be important for both attraction and retention as it is hard to terminate a policy for non-payment of premiums when there is no consumer facing premium. Gold plans from Molina will have a very significant pricing advantage over other insurers’ golds. NMHC will be priced over Blue Cross so if people are looking for a non-Molina product, NMHC is a second choice on price after an initial quality/attribute assessment.

I am assuming that the rate requests are approved as is. That is implausible but a realistic starting point. I am assuming that the other insurers don’t alter their product offerings. That, too, is a large assumption. If I was running Molina, I would introduce a 59% AV Bronze plan that I could price $30 or $40 below the current Molina Expanded Bronze offering. Doing that would pull in even more people to a zero premium plan. I am assuming that the NMHC currently covered population is no more intrinsically sticky than the rest of the ACA market. I think that is reasonable.

If these assumptions are true (enough), then NMHC has problems as they will be losing a good percentage of their current, low cost members while perhaps holding onto a morbid pool of high cost patients whose expenses may not be appropriately compensated by risk adjustment. At this time, I think that keeping an eye on one of the few operating co-ops is worth the time and attention. I don’t anticipate much news until the summer of 2020 but there is a possibility of failure if the current pricing is approved in magnitude if not in exact number.