There’s an interesting report from McKinsey & Co. that puts a little flesh on the bones of the subject I mentioned yesterday on the financial performance of healthcare insurance carriers in the Marketplace following the third open enrollment (known colloquially as OE3):
The third open enrollment period (OEP) for the public exchanges concluded in January. Many carriers—both early-OEP entrants and “wait-and-see†latecomers—believed this new market would achieve stability and sustainable margins in its third year. However, recent events—including carrier turnover (both entrances and exits), plan terminations, and pricing volatility—suggest the market is still in flux.
One reason for the flux is the variability of individual market financial performance many carriers have disclosed publicly. For some carriers, significant losses are causing marked changes in enterprise-level capital, cost structures, and strategy. Early indications of 2015 performance suggest aggregate negative margins may have doubled; to date, however, only 86% of carriers have released preliminary data publicly.
We anticipate that our estimates will evolve as more information is released, such as final 3R results and rebates, as well as 2015 claim run-out and adjustments. Whether carriers’ performance in the individual market will improve in 2016 remains unclear.
I found the map at the top of this post (labelled “Exhibit 1”) particularly interesting. What are the critical success factors for carriers in the Marketplace? I suspect that they are
- Whether the states had adopted some or all of the reforms of the PPACA previous to the enactment of the legislation, e.g. California, Washington
- The size of the pools, e.g. California
- The carriers’ breadth of experience within their states, i.e. I suspect that new carriers fared poorly
- In the case of small states: dumb luck
but I’d be interested in hearing the opinions of others.
New York presents an interesting test case. The state had adopted many of the reforms of the PPACA prior to the law’s enactment and its pool is certainly large enough. Why are so many carriers there having problems?
The other observation I would make is that in a small state having only a single carrier that’s making money may not be a mark of success. Next year no carriers may make money. Or the carrier that made money this year may lose money next year. In a small insurance pool plain old dumb luck can be the determining factor.
Those factors seem reasonable to me. Didn’t we establish prior to the ACA that healthcare insurance industry has relatively low profit margins? That would create a certain level of noise from year-to-year, with the best insulated being in markets with established high costs (either as a result of previous attempts at health-care reform or simply high cost-of-living states). OTOH, those consideratoins don’t seem to be working for Massachusetts.
Looking at the report clarifies things: Profit margins in the individual market:
1.4% Kaiser-affiliated plans (55% of total)
-10.5% Provider led without Kaiser
I’m surprised by Massachusetts – there’s no advantage from Romneycare?
Yet how many will give up PPO’s and wide networks for an HMO with a tight specialist/hospitalization referral network?
I’m surprised you couldn’t take the top 10 urban areas in the country, put a pin in the associated states, and color them red.
I’m not sure I follow your question about prior adoption of reforms. That those states had already priced the increases and loss experience into their rates? If so it makes the MCKinsey study a bit odd- “our insurance cost an arm and a leg…….still does.”
WaPo: https://www.washingtonpost.com/news/wonk/wp/2016/06/21/u-s-will-spend-2-6-trillion-less-on-health-care-than-expected-before-obamacare-study-projects/
The viability over time of the PPACA is predicated on a number of factors. Among these are the rate at which healthcare costs increase (the topic of the article you cite), whether carriers under the plan can make money (the topic of the report that is the subject matter of the post), and the political will to subsidize the healthcare insurance of those who buy plans under the PPACA.
We still don’t know why healthcare costs aren’t rising as fast as had been projected. That it’s attributable to the PPACA seems far-fetched because a) relatively few are covered under it and b) the trend towards lower costs had already begun before the PPACA was enacted. It may be due to the PPACA. It may be because Baby Boomers are healthier than they had thought. It may be due to slower economic growth. Their models may just have been wrong. It may be because healthcare costs don’t rise continuously but in fits and starts and we’re just in a period of relatively slow growth now with relatively fast growth in the near future. It may be due to other as yet unidentified causes.
“That it’s attributable to the PPACA seems far-fetched…………”
It would be the only (other than status) good I know of to fall in price with greater demand.
Alternatively, I’ve been told for years that health care demand and prices won’t adjust to market forces. Inelastic in econojargon. With all the premium and deductible increases it wouldn’t be surprising to see adjustments made by consumers.