PPACA reshapes individual market

A new report finds the introduction of the Patient Protection and Affordable Care Act mandates stirred up significant market share changes among carriers offering individual plans, with lower-price plans seeing a surge in enrollment.

Minneapolis-based analyst Allan Baumgarten released the study. Baumgarten looked at how the individual health insurance market grew after the first enrollment period began in November. The report followed market shifts in four states, Arizona, Michigan, Minnesota and Wisconsin.

Even with the exchanges’ notorious website problems, the study finds an explosion in growth for individual plans.

“The market for individual health insurance has grown sharply and been transformed in many states,” the report says.

Mandate moves consumers

Baumgarten noted that the growth his study found came both from individual plans sold on the f ederal exchanges and those sold on the open market, as people sought to comply with the individual mandate.

“Just as we saw eight years ago in Massachusetts, you have a lot of people buying, either through subsidies (on the exchanges) or through other channels, with agents or insurance companies,” he said. “We’ve seen enrollment in individual plans go up anywhere from 25 percent in Minnesota, to 100 percent—literally doubling in size—in Wisconsin.”

And there have been dramatic shifts in market share. For example, among Arizona-based plans, Blue Cross and Blue Shield’s market tumbled 30 points in 2014.
Most of those insured lives went to a lower-cost competitor: HealthNet of Arizona, which went from a 0.5 percent market share to a 30.8 percent share, according to data from state-based plans. Baumgarten said that national insurers haven’t released enrollment figures for 2014 yet, but the changes seen among state carriers suggest the exchanges have reshaped the Arizona market.

“HealthNet went from less than 1,000 (enrolled customers) to 62,000 in just a few months,” Baumgarten said. “That’s a huge swing.”

Cost matters, but it’s early

In Minnesota, the experience of PreferredOne illustrates the ups and downs of the new market. The plan went from a small player among the state health insurers to grabbing 27.7 percent of the individual market, a jump of more than 65,000 insured lives. PreferredOne’s pricing resulted in some of the lowest-cost silver plans in the nation—but the health plan shocked observers in Minnesota last week when it announced it would drop out of MNsure.

Baumgarten said PreferredOne has released very little information about why they’re leaving MNsure, other than saying that it was not “financially or administratively sustainable.”

Baumgarten noted that MNsure was one of several state exchanges that had serious website problems. Recent media accounts suggest that MNsure is still struggling with website glitches.

“My view is that operational problems are the major reason for the PreferredOne decision,” he said.

MNsure officials have said that four carriers will continue to operate on the state exchange. And Baumgarten pointed out that the exchanges were just one part of the individual market, adding that his data shows that more than half of the individual policies that PreferredOne picked up in the last year were outside the MNsure exchange. He said the health plan wasn’t likely to drop those policies.

“They haven’t said that they’re dropping out of individual insurance altogether,” he said.

Market shifts were seen in the report’s other two states as well. In Michigan, Humana’s new individual plan went from 0 percent of the market to 7.3 percent (close to 32,000 lives). However the two Blue Cross plans in the state, Blue Care Network and the Blue Cross and Blue Shield of Michigan plan, continue to dominate, with more than 70 percent of the individual market.

And in Wisconsin, a new insurance co-operative, Common Ground, went from nothing to 12.3 percent (27,475 lives). In western Wisconsin, Minnesota-based Medica entered the market with an HMO that went from nothing to 3.1 percent (6,862 lives) market share.

Small players struggling

The first year for smaller players such as PreferredOne has been difficult overall, the report suggests. Although a few startups and small players have done well in the changing market, setting the pricing has been tricky. And the report found that many new plans designed to compete in the exchanges have in fact struggled to gain market share. As with PreferredOne, Baumgarten said, many of the troubles could be attributed to the glitches that plagued the state and federal websites when the exchanges went live.

“With some of these startup plans … all the operational problems with HealthCare.gov really hurt them badly, because they didn’t have established relationships with agents or brokers, or didn’t have a fully developed in-house sales force,” he said. “The fact that you couldn’t go on the website and do the comparison shopping you wanted to do left a lot of people saying, ‘I’ll just look somewhere else to find coverage.’”
The result was that the website failings hurt not only consumers but some of the very plans specifically designed for the exchanges. In Minnesota, PreferredOne’s decision to leave is just the latest example of how website problems have translated into carrier headaches.

Baumgarten added he expects smaller plans will continue to experiment with pricing. “I know that the co-ops and [other] plans are looking at their pricing, and some will probably drop their pricing to reach a more competitive price point,” he said. “Certainly if healthcare.gov is working better, that will benefit them.” But even with improved websites, the poor start in the first year has put many of the smaller plans on shaky ground, he added.

More competition, fewer choices?

With the growth of the individual insurance market and the shifts in market share among carriers, Baumgarten says his analysis shows a more competitive marketplace going forward. With the exception of PreferredOne in Minnesota, he expects more plans, not fewer, to be selling in the exchanges.

“UnitedHealthcare is going into 20 more states, Humana is entering more states, and nobody is pulling out of any of those states,” he said, adding that the increased competition should put downward pressure on premium rates. “I think it is widely understood that more competition in the end is going to result in lower premiums, or at least smaller increases year-to-year in premiums.”

And with the pressure to hold down costs, carriers are likely to continue to limit networks, Baumgarten said.

“There aren’t that many tools they have available to hold down prices. Network design is one of them,” he said. “The federal government has been issuing guidelines about network access that might constrain the ability of insurers to offer very narrow networks, but I think they’ll find ways to get around that. I think in general they will use network design as a major part of their strategy to reach a competitive price point.”