The demise of many co-ops and United Healthcare’s threat to pull out of the Exchanges due to some $700 million in past and forecast losses has generated more speculation that ACA, the Exchanges, and health reform in general are in dire straits.

Deep breath here, folks.

First, historically United has not been known for expertise – or much interest – in the individual marketplace.  Afer entering the Exchange markets late, it was operating in about 60% of the rating areas, an indication that the huge insurer jumped in to the market belatedly and then with both feet.

Second, United’s “big” losses are an estimate – UNH reported it lost around $500 million on ACA plans in 2015 (although it’s a bit early to come up with any number) and, depending on which source you read, is predicting it will lose hundreds of millions more this year. Given the huge insurer’s inability to predict financial returns on the front end, I’d suggest that these current predictions be taken with the proverbial grain of salt.

Third, the dominant low-cost insurers in the vast majority of health insurance rating regions are either Blues plans or Medicaid managed care organizations.  So, while the Co-Ops Rubio-induced failure is a major issue, it by no means is a harbinger of system-wide collapse.

Remember, the health care financing and delivery system accounts for 17% of our GDP.  It is going thru huge and wrenching changes, changes that mimic what we’ve seen in manufacturing, heavy industry, shipping, commodity production.  If anyone thought this was going to be smooth, simple, easy, and predictable they were naive beyond belief.

Change is always destructive for some, an opportunity for others, and unpredictable at best.  The genius of our economic system is that smart, adaptable, well-positioned companies will survive and thrive.

So, let’s not get too upset about United’s theoretical $720 million loss.  That accounts for  a whopping 0.42% of the company’s total revenue of $167 billion.

And, United’s departure from Exchanges opens opportunity for other health plans.

What does this mean for you?

Opportunity favors the prepared, and change is opportunity.

Yesterday we focused on enrollment, and more specifically the change in the number and percentage of eligible Americans covered by health insurance.

In sum, about 9 million more non-elderly folks were insured earlier this year than were at the end of 2013; that means a decrease in the percentage of non-elderlies without insurance from 16.2% of the population to 10.7%.

Today we’ll look at health care costs.  One of the ACA’s goals was to reduce future medical costs; to be clear that does NOT mean costs in 2016 will be less than costs today, but rather cost inflation will be lower.  

A bit of history is helpful here.  I sold health insurance to employers a long time ago; when I could deliver a rate increase below 20%, I felt pretty good. Nowadays, rates are going up in the low teens for most individual coverage – but that’s just part of the picture.  Let’s start with total health care costs – because we taxpayers fund Medicare and Medicaid as well as our own coverage.

These are projections and as such are just that, however it is useful to compare them to past projections, which had overall medical inflation trending higher than this more recent forecast. (note the figures below are in billions of dollars, not millions)

Now, on to employer and individual costs. Let’s understand that ACA does have SOME impact on costs; added benefits, Exchange distribution, mandated coverage, and the demise of many Co-Ops thanks to the “Rubio Amendment” are repercussions that have yet to be fully felt.

For employers, the latest reports indicate increases of 6.6% (HMO plans) to 9.9% for PPOs for 2016.  The primary drivers are prescription drug and hospital pricing; both are up substantially.  Notably, Segal’s trend increase predictions have consistently been a couple points higher than the final results.

Finally, I’d note that shopping on the Exchanges can be quite beneficial.  We switched from an Excellus Blues Gold plan to a Fidelis Platinum and cut our premiums by $50 a month and out of pocket expenses by several thousand dollars.  Better coverage, way better health plan (Excellus screwed up our enrollment, billing, and coverage repeatedly), and less money.

What does this mean for you?

ACA looks to be moderating long-term trend rates overall.  Total costs for 2015 are well under prediction and forecasts look good.  That said, there are pockets of big increases – some of that due to the lack of competition.

I’d give it a B-.

Let’s start with enrollment…

All in, there’s about 6.5 – 7 million new non-elderly insureds via public and private exchanges to date. The total increase in non-elderly insureds from 2013 to 2014 was just under 9 million (this includes employer-sponsored insurance and governmental programs).

While there’s no completely precise way to get to an accurate number of exchange enrollees, by far the best source for most info is Charles Gaba.

According to the latest estimates, between 32 and 36 million remain uninsured. (the definition used for the latter figure is “at the time of the interview”; as definitions vary, one has to be careful when comparing reports).

Regardless, there’s been a dramatic decrease in the uninsured population since 2010…

Yes, the number of uninsureds remains higher than the original CBO projections. And no, that’s not surprising, given a number of states with a ton of uninsured citizens rejected the Medicaid expansion. According to the CDC,

In Medicaid expansion states, the percentage of those uninsured decreased from 18.4% in 2013 to 13.3% in 2014. In non-expansion states, the percentage uninsured decreased from 22.7% in 2013 to 19.6% in 2014.

About 21% of the 36 million are either undocumented or legal immigrants who’ve been in the US less than 5 years; this population is not eligible for governmental programs or subsidies.

Tomorrow – costs.

Health insurance is a classic mature industry; consolidating, dominated by a few very large players, very difficult to enter, price-driven.

Big insurers have many advantages over new entrants:

• their market share enables them to drive hard bargains with doctors and hospitals, getting the best prices;
• the huge costs of IT systems and integration thereof are spread across scores of millions of members, not tens of thousands;
• they have established brands, making them more attractive to consumers; and
• they have terabytes of data on everything from provider practice patterns to consumer spending habits to drug dispensing, allowing them to predict costs, trends, and expenses with far more accuracy.

Co-Ops, those not-for-profit, consumer-driven, local health insurance outfits were going to challenge the big boys, relying on great service, intense marketing, and local knowledge to carve out a niche in local markets.

And the ACA had provisions specifically designed to help them develop, grow, and become viable competitors – in local markets – in an industry dominated by behemoths. These provisions included “risk corridors”; financial vehicles designed to help health insurers entering markets by offsetting initial losses by transferring profits from their wealthier competitors.

The idea was to force competition into a market where size is all that matters, where it is all but impossible for new, entrepreneurial competitors to start, much less succeed.

Those provisions disappeared, killed off by a Congress ostensibly interested in the competition and the free market.  Specifically, Sen Marco Rubio inserted the clause in the Cromnibus bill that prevented the Feds from moving money around to cover the Co-Ops’ losses in 2014.

Let’s remember that the risk corridor payments were to be budget neutral over the three year lifespan of the program.  The Rubio amendment (Section 227) forced CMS to shift that to a “pay as you go” model.

Lest anyone think this was a new thing, recall a similar program was implemented by George W Bush and his GOP allies in the Medicare Part D program.

Here’s the net.  A politician scores political points by killing a program his own party used to pass the biggest entitlement increase in 50 years.  

And in so doing, he killed off competition in the industry that needs it more than any other.

What does this mean for you?

Less competition will lead to higher prices and poorer service.

Thanks, Marco.

There’s been a lot of focus on United Healthcare’s announcement that its Exchange business is not doing well – and is likely to lose somewhere around $200 million this year.

As a result, UHG revised financial expectations for 2015, “reflecting a continuing deterioration in individual exchange-compliant product performance.”

CEO Stephen Hemsley said their mistake was getting into the Exchanges too soon, before things had a chance to settle down.  UHG did not exactly jump into the Exchanges, in fact their Exchange enrollment is a rather modest 540k members out of UHG’s 47.4 million total enrollment.  That’s just over 1 percent.

And, in some states, such as Illinois, things are looking pretty good.

Early on, UHG was quite cautious about the Exchanges.  In 2014 UHG only participated in the individual market in one state where it paid into the risk corridor program (so it’s operations were profitable). Results were solid in the small group market as well; UHG participated in several marketplaces and overall lost less than $1,000 through the risk corridor underpayments – while paying into the program in several states.

There are two main considerations here; UHG-specific and Exchanges in general

My view: UHG is a national player that is not particularly well-positioned in many local markets and therefore has a tough time competing with the Blues. There are two key dimensions to this.

First, the Blues have better brand awareness than UHG on a national basis, and individual plans likely have even stronger consumer recognition in many local markets.  While UHG is a huge player nationally, health care, like politics, is local. And no one does local better than the Blues.

Second, the Blues – provider relationship tends to be more collegial and less adversarial than the UHG – provider relationship.  According to athenahealth’s PayerView, UHG’s commercial offerings rank 53rd out of all health plans reviewed, well behind many Blues plans.  In fairness, UHG is strong in some markets, but overall Blues have better relationships with providers.

The latter point is also pertinent to the Exchange issue.

Payers’ success in the brave new world of health care will be driven by close cooperation between payers, providers, and members.  Data sharing, management of potentially-expensive members’ health, and cooperation in marketing are all essential, and that’s where the Blues’ decades-long local relationships will pay off. Things can and often do get contentious, even when Blues are involved (see New Jersey…), and when they do the stronger and longer the underlying relationship, the more chance things will work out.

There’s another dimension to this; some critics including colleague and mentor Bob Laszewski have noted the impact of adverse selection on UHG’s results.  Simply put, too many less healthy folks have enrolled to date, and not enough healthy ones.  This will change over time as penalties for non-participation increase; 2016’s is $695 per person.

Yes, health insurance plans are too expensive.  Yes, deductibles and member cost-sharing is too expensive for many. The inevitable result of the individual mandate combined with standardized benefit plans is narrow networks, lower health care prices, and aggressively managed member health.

It’s going to be messy and painful.

It’s also necessary to reform an industry that accounts for 18% of our GDP while delivering a product that is often low quality.