Earlier this week, United Healthcare, the nation’s largest health insurers, told its shareholders that it would be pulling back on efforts to market its Obamacare plans for 2016 and might pull out of the market in 2017. Eternal optimists about Obamacare have been quick to note that United, although a large insurer generally, “only” covers about 540,000 people on the Exchange. This is about 6% of those who enrolled in 2015. In fact, however, United’s announcement should be a cause for great concern, not just for the half million plus, but for a large number of people purchasing coverage from other insurers who likewise may become intolerant of continued financial losses. To quote Katherine Hempstead,who heads the insurance coverage team at the Robert Wood Johnson Foundation, “If [United] can’t make money on the exchanges, it seems it would be hard for anyone.”
This entry is about a little experiment. Although United may not be one of the biggest players on the Exchanges, the various Blue Cross insurers most definitely are. And so, what does United’s situation suggest about the vulnerability of Blue Cross insurers?
It turns out that there are 38 markets for which we have data on which Blue Cross and United compete for Silver plans, the most common metal level purchased. By market, I mean they both sell the same kind of plan type (HMO, EPO, POS, PPO) in the same rating area of a state. (This looks only at states that use healthcare.gov and thus have their data made available at data.healthcare.gov). So, if Blue Cross sells at least one HMO plan in Georgia Rating Area 7, and a United company likewise sells at least one HMO product in Georgia Rating Area 7, I treat the two insurers as competing against each other. And, if Blue Cross’s premiums tend to be lower than United’s in the competing markets and United is losing money, that might be some evidence that Blue Cross is vulnerable.
The chart below shows the result of the experiment. I calculated the median silver premium for Blue Cross companies in the 38 competing markets and the median silver premium for United companies. I then divided the Blue Cross median by the United median. I used a 40 year old adult individual as the basis for the computation, although prior research shows that little turns on the choice of age. The chart shows a histogram of the results.
What we can see is that the histogram is skewed to the left: on balance, Blue Cross tends to charge less than United. Sometimes, as in three rating areas in Kansas and two ratings areas in South Carolina, it charges less than 3/4 of what United charges.
Does this prove that many Blue Cross insurers place themselves in financial jeopardy by continuing to sell? Hardly. There is a lot more to profitability than premiums even when metal tiers and plan types are the same. Blue Cross may have struck better deals with medical providers. Blue Cross may run a more efficient operation. Blue Cross may be able to attract a healthier risk pool. Blue Cross is raising its rates. Claims experience in 2016 may be different than experience in 2015. And, in some markets, Blue Cross charges more. In Virginia Rating Area 10, Blue Cross’s median is 1.27 times that of United’s. I get it.
I’d feel a lot better about other insurers’s prospects if they tended to charge more than one that was encountering financial difficulties. And, yes, perhaps the ACA can shrug off the possible departure of United. We can trot out the words “blip” and “outlier.” But I am not ready to join some academics and advocates in the eternal Obamacare sunshine with a chorus of “nothing to see here.” Maybe there’s not much difference between United’s situation and that of other large insurers. Maybe, it’s just that United’s directors and officers found the courage to sound the warning sooner.