Featured Health Business Daily Story, Nov. 18, 2011

Lured by New Enrollees, Exchanges May Alter Insurance Landscape (with Map: Market Share of Largest Insurance Carriers in the Individual Market, 2010)

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 Steve Davis, Managing Editor
November 2011Volume 1Issue 4

A pair of recent reports highlights the limited amount of competition that exists in a majority of states (see map, p. 4). But insurance commissioners, consultants and executives charged with building insurance exchanges tell HEX that these entities have the potential to change that by attracting new players to the market.

The health reform law, for example, requires states to include a “multistate” insurance option in their exchange. It also grants federal funding for the development of a Consumer Operated and Oriented Plan (CO-OP) (HEX 8/11, p. 5).

Moreover, companies that now operate Medicaid managed care plans could wind up competing with commercial carriers in an exchange, particularly if a state makes “minimizing churn across subsidized programs an explicit goal of the exchange,” says Rosemarie Day, the founding deputy director and chief operating officer of the Connector Authority in Massachusetts, who now heads her own consulting firm. Between the millions of newly insured enrollees and those who are re-evaluating their coverage options, there will be enough business in play in 2014 that new entrants will have growth opportunities, she adds.

“Some national carriers have looked into moving into new markets, and Medicaid managed care [companies] have been aggressively moving to capture new Medicaid contracts,” says Caroline Pearson, a director at Washington, D.C., consulting firm Avalere Health LLC. “The hope is that more plans than we currently have operating are going to enter the market due to the increased enrollment and competition.”

Big Carriers Dominate Many Markets

A single insurer dominated at least half of the individual market in 30 states and the District of Columbia, according to a report released Oct. 13 by the Kaiser Family Foundation. An analysis released Oct. 25 by the American Medical Association (AMA) mirrored those results and determined four out of five metro areas lack a competitive commercial health insurance market. Moreover, nonprofit and for-profit Blue Cross and Blue Shield plans are the dominant carrier in all but seven states, and are the second largest carrier in all but one of those states.

However, for states dominated by a single carrier, it could be difficult for an exchange — both economically and politically — to threaten excluding that insurer from participating in the exchange, the Kaiser report warns.

But the lack of multiple health insurers doesn’t mean consumers have limited choice, contends Robert Zirkelbach, a spokesperson for the trade group America’s Health Insurance Plans. “Some companies may have large market share because they have been around a long time, they offer the most affordable options, or they have the highest satisfaction rates — that is the essence of competition,” he says, adding that health plans in states cited as the most concentrated actually have some of the lowest premiums in the nation.

Day says it is possible for an exchange to work with a limited number of carriers. “Consumers need to have choices, but they don’t need to be overwhelmed with options. As long as at least some of the carriers present choices that offer decent quality at an affordable price, then a small number can be OK,” she says. “There will be some other policy levers for states to use to enhance insurance market competitiveness, such as rate review and changing the insurance market rules. These can work in combination with their exchange policies, such as an active-purchaser approach, if they want to enhance competitiveness.”

And not all states are interested in bringing in new competitors. California has one of the most robust health insurance markets in the nation and isn’t looking for any new blood. State legislation enacted last spring gives the state’s exchange the ability to be a selective purchaser.

And given the number of health insurers that operate in the state, it’s expected that the exchange’s board will opt to take that route, predicts California Health and Human Services Sec. Diana Dooley. Allowing only health plans that offer the best value to participate is likely to be the model, she says (see state profile, p. 6).

But the exchanges could give new players, as well as small carriers, a level playing field (HEX 10/11, p. 5). Consumers are likely to be more sensitive to price than to brand, which can open opportunities to certain types of competitors, says Day. “The exchange will level the playing field for all competitors, through its website and marketing rules. In addition, some exchanges might make it a goal to encourage new entrants, and will take extra steps to ensure that this happens.”

While the reform law allows for one CO-OP to participate in each state, Pearson says it’s likely that those entities will operate regionally in the early years of the exchanges. “I’m not sure if CO-OPs are going to be much of a force, at least initially, at capturing a lot of the market in the early years,” she says.

States Hope Exchanges Bring New Players

Insurance department executives and exchange leaders expect an exchange will alter the competitive landscape. Here’s what they told HEX in telephone and email interviews:

Mississippi: Blue Cross & Blue Shield of Mississippi controls about 40% of the state’s small-group and individual market, according to the Mississippi Insurance Dept. However, officials there are optimistic that its insurance exchange will help it add a few more players to the mix (HEX 8/11, p. 11).

“We hope [the exchange] will be a competitive marketplace and will attract competitors….We can’t be certain of that, but that is the goal,” says Aaron Sisk, the department’s senior staff attorney. “We have such a skewed competitive marketplace right now. We have so little competition…that we can only benefit from more competitors.”

Sisk adds that while his department hasn’t been contacted by any groups about forming a CO-OP, “I wouldn’t be surprised if we heard from someone over the next few months.” The department already is reaching out to small carriers in the state and explaining that the exchange will allow them to compete more fairly with much larger carriers. “We’re using that as a selling point,” he tells HEX. “But there are some legitimate concerns about whether they’ll be able to comply with the [medical loss ratio] requirements” of the reform law and continue offering products.

States Predict More Competition

Georgia: Blue Cross Blue Shield of Georgia, a WellPoint, Inc. subsidiary, is the largest carrier in the state. While Georgia is one of 26 states challenging the constitutionality of the reform law, Gov. Nathan Deal (R) appointed a committee to recommend whether the state should establish an exchange and how it should be done. Trey Sivley, assistant director of regulatory services at the Georgia Dept. of Insurance, says the risk-adjustment mechanism called for by the reform law could help reduce adverse selection and help smaller carriers compete. And Sivley says his office has received “initial communications” from several entities that are interested in applying for federal funding to create a CO-OP. “Barring something unexpected, we will have a CO-OP here,” he tells HEX.

Oregon: It’s expected that a couple of national carriers will expand into the Oregon market, and at least one group is taking steps to create a CO-OP. But Amy Fauver, deputy director of the state’s insurance exchange program, says any change to the competitive landscape in the state is likely to be minimal because there already are “a lot” of carriers. About eight health plans share more than 90% of the market now. Unlike California, Oregon’s exchange, which will operate as a public corporation, will accept all qualified health plans (QHPs). “We want to have a variety of options for consumers, but it also needs to be an appealing place for insurers to sell,” she tells HEX.

Arkansas: Although an exchange will be able to function with a limited number of carriers, a spokesperson says the Arkansas Insurance Dept. would like to see some new carriers enter the mix. While some health plans have said too many insurance competitors could weaken their bargaining power with large hospital systems, spokesperson Alice Jones says, “a healthy and competitive marketplace has always worked to the benefit of the consumer.” To date, she says, there have been no CO-OP applicants.

Editor’s note: To see the Kaiser report, visit www.kff.org/healthreform/8242.cfm. To see the AMA report, visit www.ama-assn.org. To see AHIP’s report, visit http://tinyurl.com/3egwra9.

Market Share of Largest Insurance Carriers in the Individual Market, 2010

Source: Kaiser Foundation analysis of 2010 filings to the National Association of Insurance Commissioners and the California Department of Managed Health Care using the Mark Farrah Associates Health Coverage Portal. Market share was calculated as the percent of the state’s individual insurance market enrollment accounted for by each parent company (measured in member months).


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