Featured Health Business Daily Story, Oct. 25, 2011

Good News for Small Carriers: Exchanges Could ‘Dilute’ Brand

Reprinted from INSIDE HEALTH INSURANCE EXCHANGES, a hard-hitting monthly newsletter with news and strategic insights on the development and operation of state exchanges.

By ,
October 2011Volume 1Issue 3

Behemoth health plan operators have advantages over their small competitors in almost every way. But insurance exchanges could change that.

“One of the advantages and unique elements of insurance exchanges is they tend to dilute brand,” according to Kevin Counihan, former chief marketing officer for Massachusetts’ Commonwealth Health Insurance Connector Authority. “If you are a health plan that has 70% market share, you tend not to love exchanges because you have never had to compete in that kind of transparent marketplace before. The smaller plans love it…and it makes them want to be a bit more aggressive.” Counihan, now president of CHOICE Administrators Exchange Services, an developer of insurance exchanges, offered his thoughts during a Sept. 29 conference on insurance exchanges. The two-day conference, sponsored by World Congress, was held just outside of Washington, D.C.

The reform law requires HHS to develop a rating system for health policies offered through the exchanges. The ratings are likely to be based on premium costs, payment policies and practices, enrollment and disenrollment levels, claim-denial rates, financial soundness of the company, medical loss ratios and member satisfaction surveys. In the eyes of consumers, ratings might trump brand recognition.

Moreover, using the Internet as a distribution point will give participating carriers the same access to potential new customers. And that could make it easier for some of the smaller insurers to break into new markets, adds Sam Gibbs, president of eHealth Government Systems. “At least initially…there will be a level playing field,” he tells HEX.

“I think [insurance exchanges] could help smaller carriers compete” with larger ones, adds Enrique Martinez-Vidal, a vice president at AcademyHealth and director of the Robert Wood Johnson Foundation’s State Coverage Initiatives (SCI) program, which works with state policy leaders to develop strategies to improve insurance coverage. Through a website, insurance exchanges will let consumers compare standardized coverage options. That might help small carriers overcome some of the marketing strength that many of the big carriers have outside of the exchange, he says.

Case in point: Martin Watson, CEO of California-based SeeChange Health, expects his company to be ready to participate in six state exchanges by 2014. Martin left UnitedHealth Group’s product-development division in 2009 to launch a value-based insurance model aimed at small employers in several large markets in California. SeeChange expanded statewide on Oct. 1.

“We already administer and support all of the benefit designs required under the reform law….I think we’re very well positioned for the exchange model,” Watson tells HEX. “We’re very excited about the exchange model and moving into that space.” Martin’s company is licensed to sell coverage in 25 states; it expects to expand into Colorado by the first quarter of 2012 and intends to have a presence in six states by 2014.

Disproportionate Enrollment in Mass.

The creation of insurance exchanges in Massachusetts in 2006 led to disproportionate enrollment increases for the smaller carriers. Neighborhood Health Plan (NHP) says its enrollment has nearly doubled to about 230,000 — largely due to the state’s reform law. The company offers Medicaid and subsidized coverage through the Connector as well as unsubsidized commercial group and individual products inside (i.e., Commonwealth Choice) and outside of it.

The exchange “definitely helped us to compete and expand coverage to similar populations as those we have been serving for over 25 years. It also helped us diversify product offerings,” says Carla Bettano, vice president of business development. While the company still has just a tiny fraction (1.5%) of the state’s overall commercial market, it has the largest market share (35%) of the unsubsidized enrollment offered through the exchange. “Our overhead tends to be low and we are very cost-effective,” she tells HEX.

“They still don’t have huge enrollment numbers, but they did very well within the Connector against the state’s three largest insurers,” says Rosemarie Day, the founding deputy director and chief operating officer of the Connector Authority, who now heads her own consulting firm.

Unlike NHP, Network Health was strictly a Medicaid managed care company prior to the state’s reform law. While the insurer still doesn’t sell commercial coverage, the state’s exchanges opened the door to a new market — individuals and families with annual incomes below 300% of the federal poverty level (FPL).

“We had tremendous growth in membership once the Connector introduced the subsidized product for previously uninsured adults,” says Debbie Gordon, Network Health’s chief marketing officer. “I think it created a new avenue to attract members and it created a new segment [of the population] that was eligible for our product.”

Yes, Size Does Matter

Scale will ultimately dictate price, and that is a key advantage for large carriers. So if small insurers aren’t able to compete on price, they might be able to set themselves apart on quality, suggests Mark Lutes, an attorney in the Health Care and Life Sciences practice at Epstein Becker & Green. “I don’t think that small is inherently beautiful. On the other hand, if you’re a small player, you need to create a better mousetrap in terms of care management,” he tells HEX.

Carriers will need to have strong provider contracts to compete with bigger players based on price. “It will be very tough to break into a market where the other carriers have contracts with all of the key providers,” Martinez-Vidal adds. Lower overhead or streamlined administrative services might help small carriers reduce coverage costs.

Some carriers that sell products through eHealth’s Web portal are more nimble and better at working in an online environment than others, says spokesperson Nate Purpura. “The insurers that work closely with our carrier relations team to examine what’s working and what consumers are buying…and then quickly adjust their products to fit those trends tend to have more success.” Smaller carriers are often nimble enough to make changes quickly and take advantage of market trends. Larger organizations, by contrast, might take six months to change a pricing point, Gibbs adds.

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