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Over at the Upshot, Margot Sanger-Katz and Reed Abelson have an interesting discussion of the difficulties some insurers are having adjusting to Obamacare's insurance exchanges.
On Friday, UnitedHealth announced its intentions to pull out of Georgia and Arkansas, and the week before the Blue Cross and Blue Shield Association released a research paper arguing that new enrollees had been sicker — and thus less profitable — than expected. We're entering the season when insurers submit next year's pricing proposals to regulators, and pretty much everyone expects substantial rate hikes.
And that's where things get interesting — or, depending on your point of view, troubling. An early question with the Obamacare exchanges was whether enrollees would respond to rate hikes by shopping around each year to get a better price. The fear was that having chosen a plan once, they would stick with it, even if premiums rose sharply, and so insurers wouldn't be forced to cut costs. For competition to revolutionize the insurance market, enrollees have to actually force insurers to compete for their business.
Happily, that's exactly what enrollees did. Only a third of Obamacare enrollees in 2016 had been on the same plan in 2015. About 25 percent of exchange users switched their plans in 2016. This is precisely what health wonks hoped would happen. In response, insurers have fought to keep costs down, narrowing networks and hiking deductibles.
The result is that Obamacare is proving much cheaper than the Congressional Budget Office originally expected. But many of the participating insurers aren't much enjoying the experience — some priced their plans too low and are losing money, and others simply don't see how to make enough money to justify the effort of participating in these state markets.
"I’m not sure I know what the business model is for an insurer, if the expectation is that you’re going to keep your customers for only a year," writes Abelson. "It makes achieving long-term goals like keeping people healthier and focusing on preventive measures much harder because there may be no payoff for the insurer."
Sanger-Katz agrees, and draws out the underlying tension a bit more. "The fact that people are actually switching seems like a sign that this market is functioning as it was designed. But … all that churn sure makes it hard for an insurer to make money by investing in its customers' long-term health."
I'm a bit skeptical that an inability to invest in customers' long-term health is really the problem insurers are facing. For all their rhetoric to the contrary, I haven't seen much evidence that insurers — particularly individual-market insurers — are any good at improving the health of enrollees. In most cases, I don't think they even try particularly hard to affect enrollee health beyond paying for medical claims.
But there's no doubt that in an idealized insurance system, insurers would try to invest in the long-term health of their customers. The problem is that it doesn't make much sense for them to make those investments if they're just going to lose their enrollees to a competitor a few years later. This is one of the underdiscussed downsides of the push for competitive insurance markets: The easier you make it for enrollees to switch insurers, the harder you make it for insurers to invest in the future health of their enrollees.
And perhaps that's fine. Maybe the right model for insurers is something like Southwest Airlines: low prices, narrow networks, exceptional customer service, and not much else. I lean toward that view myself, in part because I don't think insurers have the tools or the trust to effectively change behaviors among their enrollees. Probably the most effective ways for insurers to invest in enrollee health would be to lobby state and local governments to pass smoking bans or tax alcohol.
But if you think the people who pay for hospital stays should also be responsible for keeping the number of hospital stays to a bare minimum, competitive insurance markets probably won't get you there. The model that makes sense for that purpose is something more like single-payer, where the insurer knows that if it makes costly investments in enrollee health now, it will be the one to reap the benefits later.
For more discussion of Obamacare — including some big wins the law has recently scored in the Medicaid and employer markets — listen to the April 8 episode of Vox's policy podcast The Weeds, which you can subscribe to on iTunes, stream on SoundCloud, or download wherever fine podcasts are, well, downloaded.
