NYS Insurance Price Wars

One of the puzzling questions about the Health Insurance Exchanges (a key component of the Patient Protection and Affordable Care Act) is, “How can the same products have such variations in premium pricing?” Differentials of between $200 and $500 a month are noted for the same metallically labeled products.  Why the difference? Answer: the insurance carrier.

The lowest prices have been associated with the newest entrants into the NY market, Heath Republic and OSCAR. The established payers, such as Empire and, in particular, United Healthcare, were priced at the high end.

Since all products are essentially the same in terms of benefits, the difference would be in the costs of the network that supports the payer’s product and the pricing philosophy of the company.

OSCAR and Health Republic are using the MagnaCare network (not known for better rates to physicians and other providers), while Empire uses a stripped down network, excluding at a minimum all academic medical centers and their associated physicians. United uses the Oxford Liberty Network making it the largest network supporting products on the exchange.  Some of the physicians, like UPN members, have rates with a very positive differential from the street rates. These higher rates translate into a larger network and higher premium.

However, corporate strategy may also be at work in the pricing of exchange products. United, , concerned that they could attract adverse selection by their wider network, took a very conservative approach. OSCAR and Health Republic moved to a more aggressive approach, resulting in some accusations that they were offering unsustainable rates to buy their way into the market. Aetna stayed off the exchange, and thought they would escape adverse selection by doing so, but was found affordable by those not needing income subsidies to purchase health benefits, and attracted by the wide Aetna network.

Another element of the pricing strategy was to consider the federal “adjustment”, or the price for expected utilization and costs.  As an enticement to participate, Payers who took the “risk” of being on the exchange have been promised economic bailout during the first 3 years. Some payers priced these plans expecting that they will get federal support for medical losses in this initial period, as well as a severity of illness adjustor, worth more than the premiums.

Severity of illness medical record requests can be expected to increase, as diagnosis coding — and its importance in payment to the payers — will play a more important roll.  Right now, only Medicare for the Medicare Advantage Plans has a severity of illness adjustment factor.

How this plays out will be seen in the rate filing for 2015 and 2016, as payers price for growth, or for financial stability. In any case, as financial viability is squeezed, payers will squeeze providers.

Robert Goff, Senior Advisor, The Verden Group