Aetna and United and their Exit from the Exchanges
In the recent months, Aetna and United have stopped offering coverage through the Exchanges. In California, Blue Cross Anthem and Blue Shield increased their premiums by close to 20%. What’s happening? What lessons should we be learning? What corrective actions are needed?
Neither Aetna nor United were major players in California’s individual and small employer markets before the ACA, nor were they major participants in Covered California after the ACA. Their recent drop-outs are utterly meaningless in the context of the California markets for individual and small employer coverage. United did try to participate for one year in Covered California in the small rural communities. Its prices were much higher than their competitors, and they attracted few enrollees.
They are not able to compete and participate in California’s small group and individual markets for two reasons: 1) high premiums and 2) insufficient market presence to be able to negotiate favorable rates with a loyal provider network.
Anthem Blue Cross and Blue Shield of California were strong participants in the small group and individual markets before the ACA and in Covered California after the ACA. They had favorable premiums and strong market presence enabling them to negotiate favorable rates with a loyal provider networks. However they have for decades been unable to develop an effective HMO with strong quality rankings and competitive premiums to compete with Kaiser.
In the first two years, Anthem Blue Cross and Blue Shield PPOs offered very competitive rates; this year their premiums exploded by close to 20%. Kaiser’s premiums meanwhile increased by only 5.5% or so in most California regions.
Potential explanations are that in the PPO model with a broad provider network, they are less able and adept at managing costs and care than Kaiser is in its long established HMO model. Another possible explanation is that they may be attracting adverse selection of the sickest patients. While there have been strong provisions in the ACA that adjust for adverse selection, two of the three expire this year, and some have raised questions about the capacity of the third and remaining provision to counteract adverse selection between plans. A third possible explanation is that they low-balled their initial premiums to gain market share and are now increasing them to balance their books. Yet another consideration is that broad networks may not be as cost efficient as narrow networks where care can be better managed and costs better controlled.
There needs to be careful study to determine the causes before designing the corrective action. Some favor adding in the “Public Option” essentially allowing Covered California subscribers to choose Medicare. Medicare has existing mechanisms to control provider rate hikes that are far more cost effective than private insurance. Another idea is to add the Medi-Cal managed care plans. Some already participate, their rate hikes have been modest, and their prices are competitive. Participation of some of the Bay Area and northern rural Medi-Cal managed care plans might add competition from lower cost plans and improve affordability. There would need to be sufficient capacity in these plans for them to make a meaningful contribution.
Prepared by: Lucien Wulsin