I was not surprised when United Healthcare pulled out of the Exchanges. I could not see how they could make money given the combination of their network and premiums.
TLDR: United Healthcare is losing money because they did not think their strategy through. Sucks to be them but this is not a systemic Exchange problem….
We know that the Exchanges are an extremely cost sensitive market…I would bet that United did fairly well in the eight markets where they had either the 1st or 2nd Silver. They’re getting killed in markets where their products are not price competitive…..United Healthcare is offering a product in my region. The network for their least expensive Silver (which is 10% more expensive than the benchmark Silver) is significantly broader than the networks of two competitors low price Silver options.
The New England Journal of Medicine has a very interesting article by Craig Garthwaite and John Graves** that provides a lot of support to my Exchange analysis and why United Healthcare and other insurers were in trouble on Exchange.
To examine more systematically whether poor insurer strategies may have contributed to market exits, we combined information on insurer participation in the marketplaces for the 34 states with available data for 2016 and 2017. These data included information on premiums, provider networks, and insurers’ local experience with other populations such as Medicaid beneficiaries. We used this information to investigate factors associated with a sustained presence in the ACA’s nascent insurance markets….
Our data show that the exiting plans offered an unappealing combination of smaller provider networks and higher premiums. For example, an unsubsidized 35-year-old person enrolled in one of the plans that was discontinued would have paid, on average, $16 more per month for a plan with 8% fewer local in-network hospitals than a similar person enrolled in a plan that was not discontinued….
In supplementary analyses, we also compared characteristics of insurers and plans entering the exchange market in 2017 and found that new plans had substantially lower premiums than their local competitors (premiums are $30 per month lower for a 35-year-old enrollee). Moreover, issuers of these new plans were more likely to have experience with Medicaid managed care but less likely to have direct experience in the markets they entered. This finding is consistent with the existence of a functioning market in which firms that were initially successful are moving into new geographic areas.
The one question I have is if there was a flag for co-ops as I think some of the results would change if we can stratify the data that way.
But the story Garthwaite and Graves tell is that firms that offered bad products with little experience in a comparable market and not a lot of experience actively managing population actuarial risk were far more likely to leave. Firms that offered low price, modestly broad networks with experience in fully insured risk managment and Medicaid managed care are more likely to survive and expand.
Or basically, firms that knew what they were doing and could offer decent products beat out firms that offered really bad values.
Is that shocking? No, it is market capitalism doing what it is designed to do.
**Garthwaite, Craig, and John A. Graves. “Success and Failure in the Insurance Exchanges.” New England Journal of Medicine (2017): n. pag. Web. 1 Feb. 2017.