By Erin Mershon, CQ Roll Call
May 18, 2016 -- Smaller insurers with experience in Medicaid, such as Centene Corp. and Molina Healthcare, are outperforming the broader insurance industry on the federal health exchanges. Their success is putting a spotlight on their business model as the Obama administration and other insurers seek to stabilize the fledgling individual market.
If Medicaid-like plan features become the norm that could substantially affect consumers and medical providers. Such plans are often popular in the exchanges for their low premiums, but consumers have frequently criticized the way plan networks limit their access to medical providers such as doctors. And physicians criticize the plans for low reimbursement rates.
The financial success of those plans stands out as the health insurance marketplaces for individuals face mounting pressure to stabilize. The nation's largest insurer, UnitedHealth, already dropped out of more than three-fourths of the state exchanges it participated in last year. Analysts estimate the industry suffered losses in the range of $5 billion last year.
Centene and Molina, meanwhile, not only profited in 2015 from their exchange business under the health care law, but are considering expansion, executives outlined on recent earnings calls.
Replicating or at least matching the Medicaid plans' profits will be paramount for both their competitors and the Obama administration, since insurer participation in the exchanges is a key metric for gauging the success of the 2010 federal health overhaul. The law aimed to establish competitive marketplaces where consumers could choose from an array of plan offerings.
"Plans that have experience in Medicaid and understood [that market] faster are now doing better taking care of this population," said Ceci Connolly, president of the Alliance of Community Health Plans, whose membership includes several Medicaid managed care plans, which contract with states to provide coverage.
Many health plan executives mistakenly thought newly insured exchange consumers would behave like workers who are covered by employers, but it turns out that exchange consumers are more like Medicaid enrollees, Connolly said. "Part of the reason why we see those departures by some of the big national for-profits is that it took them too long to appreciate the unique challenges of these customers," she said.
A Different Approach
Many other insurers are struggling to adjust to the new market. More than 650 counties may have just one insurer participating on the exchange this year, according to an ongoing Kaiser Family Foundation analysis.
Medicaid-focused insurers fared better than any other type of insurer in 2014 as the new health law marketplaces were launching, according to a report released Monday by the McKinsey Center for U.S. Health System Reform. The analysis documented losses across all types of plans–but while nonprofit co-operatives and provider-led plans saw negative margins in the double digits, Medicaid insurers saw losses of just 2.7 percent.
The administration is set to highlight the exchange success of Medicaid managed care organizations, among others, at a June 9 forum on best practices for insurers.
"One theme that's consistent is that success in the Marketplace requires a different approach to providing care than was required for success in the old individual market," wrote Health Insurance Marketplace CEO Kevin Counihan in a statement.
Medicaid managed care companies cover about 55.3 million Americans, about 77 percent of the country's Medicaid beneficiaries. In an effort to keep their costs down, the plans often focus on coordinating patients' care and helping them manage their diseases. The plans curb costs by encouraging preventive care and offering limited provider networks of doctors and other hospitals.
Molina and Centene have done that in the new health exchanges, too. They attract customers already familiar with their brand—and in many cases, their exchange customers have just transitioned from their Medicaid plans. The companies limited their exchange participation mostly to states where they already offer plans in Medicaid.
"It's an extension of our Medicaid business," said J. Mario Molina, president of Molina Healthcare, in an interview. "We're focused on customers who had been on Medicaid, who may have been our patients. We want to give them the opportunity to stay here."
Keeping Costs Low
Perhaps the biggest draw for Medicaid-like plans on the exchanges is their cost. They already use narrow networks of providers—an easy lever for insurers to hold down prices that many plans participating in the exchanges are adopting.
A spokeswoman for America's Health Insurance Plans (AHIP), the industry's lobbying arm, emphasized that the success of managed care plans is driven by their low-cost offerings, given how price-sensitive consumers are. Clare Krusing of AHIP also cautioned against the broader idea that the exchanges might become a second Medicaid.
Experts including Connolly and Joe Antos, an American Enterprise Institute health care scholar, said consumers might not dislike narrow networks if they are matched with better care coordination and lower prices.
Medicaid managed care companies are accustomed to negotiating low rates with providers, so they may be in a better position to negotiate their exchange payments, said Antos.
Antos explained that a hospital administrator will expect higher rates from a big insurer like UnitedHealth, which pays more for employer-based coverage than Medicaid plans pay. "Whereas with Molina or Centene, they're already down at rock bottom, and they can say, 'We're going to bring in a lot more people and we can pay you a bit more.' That sounds like a good deal," he said.
Narrower networks also may make the plans less inviting to sick customers, which many insurers in the exchanges criticize as a major factor behind rising premiums, according to Katherine Hempstead, senior adviser at the Robert Wood Johnson Foundation.
Managed care plans also may be better than competitors at designing benefits for the types of people their plans attract. Both Molina and Centene customers use less medical care than those covered by competitors, according to a review of insurer data by Hempstead. That can keep costs down.
Ed Haislmaier, a senior fellow at the Heritage Foundation, attributes customers' lower utilization of care to the design of benefits. The plans often charge much higher copays for emergency room visits than other insurers to encourage consumers to skip costly hospital services in favor of cheaper care elsewhere. The plans will also often charge lower copays for primary care visits than their competitors.
"This is a population that when they need care, they go to the emergency room. You're going to have to change that behavior" to limit costs, Haislmaier said. "And [Medicaid plans] understand that population."
And to be sure, Molina cautioned that the company is "not printing money" from its exchange business. "We're seeing about the same financial performance that we do in Medicaid," he said.
But Haislmaier says he expects Medicaid-like offerings to capture a growing share of the new market.
"If nothing changed and this thing just worked itself to an equilibrium...you're probably left with one or two insurers in both states that look like Molina or Centene; maybe three or four in a big state," he said. "It's a very different program than what the proponents thought they were designing and what people have expected. It is a niche market."