Provider plans price more aggressively on insurance exchanges

Western Health Advantage decided to enter California's individual insurance exchange last year even though it previously had offered health plans almost exclusively in the small- and large-group markets.

For 2014, the Sacramento-based not-for-profit, started nearly 20 years ago by three health systems, offered plans in two of the state's 19 regions through the Covered California exchange. In the North Bay area, which includes four counties, the provider-sponsored insurer captured 4.9% of the exchange's individual market for 2014, while in the Sacramento region it got 2.1% of the market.

Meanwhile, the three giant legacy insurers—Anthem Blue Cross of California, Blue Shield of California and Kaiser Permanente—captured a combined total of more than 90% of the market in both regions. But Garry Maisel, Western Health Advantage's CEO, said his company was satisfied with its initial exchange foray considering that it generally priced its plans higher than the large insurers did.

“We were very cautious” in pricing, Maisel said. “No actuary was clear on what the health status of the incoming population on exchanges was going to be.”

Western's experience on the new exchange market established by the Patient Protection and Affordable Care Act is representative of many provider-sponsored plans across the country. Such plans typically garnered small shares of the exchange market, especially compared with Blue Cross and Blue Shield plans. There were notable exceptions. PreferredOne—owned by Minneapolis-based Fairview Health Services; North Memorial Health Care, Robbinsdale, Minn.; and a physician group—captured roughly 60% of the exchange market in Minnesota.

The launch of the Obamacare exchanges has offered an opportunity for provider-sponsored plans to compete on a level playing field with the traditional insurers that long have dominated the individual and small-group markets. Many hospitals and health systems are launching their own plans as a way to capture the entire premium dollar and hone skills in better coordinating care and controlling costs. But during the first year, they found that the marketing power and economies of scale of experienced insurers proved difficult to beat.

“Enrollment in the provider-sponsored plans was not as strong as perhaps many had wanted,” said Paul Keckley, head of the Navigant Center for Healthcare Research and Policy Analysis, which has studied participation by provider-sponsored plans in the exchanges. The difficulties that provider-sponsored plans faced were compounded by the chaotic nature of the initial open-enrollment period, with sign-ups concentrated in the final frenzied weeks. “They didn't have the money to throw at that late enrollment surge.” In addition, exchange plan enrollees overall skewed older and less healthy than had been anticipated. Still, he said, “No one's ready to pull the plug right now.”

In 2014, 72 provider-sponsored plans participated in the exchanges, about one-quarter of all insurers selling plans in the exchanges, according to Navigant Healthcare. Wisconsin had the highest representation of provider-affiliated plans with seven, followed by California and Ohio with five each. Keckley said it's too early to pinpoint trends in terms of the provider networks and plan types offered by provider sponsored-plans in comparison with other insurers.

The presence of provider-sponsored plans in Obamacare exchanges across the country is likely to grow in the coming years. Providers say alternative payment models, including bundled payments and accountable care, plus Medicare cuts make taking on insurance risk an increasingly necessary part of their business model.

One lesson learned from the 2014 open enrollment is that consumers are looking for cheaper premiums, even if that means accepting a narrower provider network and higher deductibles and other cost-sharing. The big insurers “all brought severely narrow networks to the table,” which allowed them to price their exchange plans well below their previous commercial products, Maisel said.

Now many provider-sponsored plans are retooling their products to more effectively compete in the 2015 open enrollment, which starts Nov. 15. In most cases, that means holding the line on premiums or even cutting rates.

Western Health Advantage isn't making any changes to its network, which includes the three affiliated health systems as well as other providers. But its rate changes in the North Bay region for 2015 will range from a 3% reduction to a 4% increase. Its silver-tier plan, designed to cover 70% of medical costs, will now be the cheapest in that market. In the Sacramento region, premiums will decrease by an average of 1.8%. “We got much more aggressive,” Maisel said.

Portland, Ore.-based Providence Health Plan, affiliated with Renton, Wash.-based Providence Health & Services, also is reducing rates for 2015 after attracting less than 5% of the Cover Oregon exchange market in 2014. Its enrollment efforts were hurt by the technology problems on the state exchange that made it impossible to sign up online. The Oregon market in 2014 was dominated by Moda Health, which captured 77% of exchange customers. Moda's average monthly premium for a 40-year-old buying a silver-tier plan was $51 cheaper than Providence's plans.

That won't be the case for 2015. The average premium for Providence's individual ex-change plans will drop by 14%, while premiums for its small-group plans sold on the Small Business Health Options Program exchange will decrease by nearly 10%.

The end result is the average price for Providence's silver plans will be lower than Moda's, according to the Oregon Insurance Division. Providence also is expanding to offer plans statewide and bolstering online tools to help consumers understand their choices, particularly regarding pro-

vider networks. “Consumers had a hard time distinguishing beyond price in this go-round,” said Barbara Christensen, Providence's chief sales and marketing officer.

Keckley questioned whether lowering premiums after just one year of exchange experience is a sound actuarial decision. “Holding the line is a good business strategy at this point,” he said. “There are too many unknowns.”

This is not the first time providers have moved into the insurance business. In the 1990s, there was a surge of providers starting health plans. Many of those ventures were financial debacles, largely because of providers' inexperience and arrogance, said Dr. Peter Kongstvedt, an insurance industry consultant and professor at George Mason University. They often ended up with enrollees who were sicker and costlier. “If you're just getting into this business to cut out the middleman, that is a bad goal,” Kongstvedt said. “It will not achieve success.”

The current crop of provider-sponsored plans may fare better, he said. That's in part because many more doctors are employed by healthcare systems, giving systems more direct control over quality, utilization and costs. But the landscape is also different because of the broader stakeholder commitment to curbing costs, plus the existence of the exchanges. Providers also are hiring staffers with insurance backgrounds to provide actuarial and marketing expertise. “In general, their chances of success are better,” Kongstvedt said.

Catholic Health Initiatives, which says it operates 93 hospitals in 18 states, is moving aggressively into the insurance business but is taking a cautious approach to the exchanges. By 2016, the Englewood, Colo.-based system expects to offer plans in all of the areas where it provides medical care. But in 2014, it competed only for exchange customers in Arkansas, and doesn't plan to expand its footprint in the exchanges in 2015.

Juan Serrano, CHI's senior vice president for payer strategy and operations, explained that his system doesn't have the financial reserves of the major insurers and needs to proceed cautiously. “Each of these exchanges is enrolling a unique population,” Serrano said. “We'll be watching for stability in the exchanges.”

That caution may seem prudent, but it also could mean missing out on the ground floor of a large new market. The exchange market is expected to grow to 13 million individuals next year and 25 million by 2017. The CMS recently announced that individuals who take no action will be automatically re-enrolled in their current plan, or the closest equivalent if a plan is being discontinued. That could make it difficult for insurers that sit out the first few years to gain traction in the marketplace if they subsequently decide to compete.

North Shore-Long Island Jewish Health System is another system that has sought to capitalize on the exchange market with its own health plans. The Great Neck, N.Y.-based not-for-profit system, which has 16 hospitals and nearly 400 physician practices throughout the New York metropolitan area, began selling insurance last year through its North Shore-LIJ CareConnect Insurance Co. subsidiary. The startup insurer has created a narrow network plan that relies on its own facilities to provide hospital care for enrollees. Roughly half of the physicians in its network are directly employed by North Shore-LIJ.

During the first year of exchange operations, CareConnect competed for customers in parts of New York City and Nassau and Suffolk counties on Long Island. The insurer signed up 2,357 customers in Nassau County, or 7.2% of total enrollments. In Suffolk County, CareConnect attracted 4% of the market share, with 1,494 customers.

Alan Murray, CareConnect's president, said those enrollment numbers exceeded expectations for the first year. The company is expanding its geographic footprint for 2015, offering exchange plans in Westchester County and all five boroughs of New York City, in both the individual and small-group exchange markets. To bolster its network in those areas, CareConnect is partnering with hospitals such as Wyckoff Heights Medical Center in Brooklyn and Northern Westchester Hospital in Mount Kisco, N.Y.

It is also pricing aggressively for 2015 to attract more customers. In New York City, CareConnect is reducing individual-market premiums by an average of 6% and small-group SHOP exchange premiums by an average of 20%. On Long Island, premiums in the individual market will be flat, while premiums for small-group plans will drop by an average of 14%.

“You can't have an ultra-narrow network and be priced too much higher than your competition,” Murray said. “Otherwise, people will start questioning the value.”

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