As we discussed yesterday, the provider side of the equation for health care is consolidating. Depending on how one wishes to analyze the payer side of the equation, one can strongly and correctly state that there is a massive fracturing of insurance market share and price making power. One can also say that there will soon be a massive consolidation of payer power.
Both are all true if you slant your view.
The slant is the key of a potential major problem. The consolidation argument is simple. Right now in the non-group market there are a few hundred licensed, regulated organizations that are sufficiently large to bear population risk and then twenty to twenty five million families with roughly 50 million individuals that are not covered by either government programs or the group insurance market. Once the combination of Medicaid expansion and the Exchanges go live, there will be several dozen more large, licensed, and regulated organizations added to the current list of incumbent payers and ten to twenty million fewer people running naked without insurance.
This view has truth in that the ten to twenty million people who are no longer running naked will now be facing billable rates that are both negotiated in advanced and more importantly based on standard Medicare rates plus a kicker or standard group commercial rates. Previously, they were facing rates that were charge master minus a percentage after engaging in long, ugly, protracted negotiations.
The other slant is that there are a signifcant number of new entries into the health insurance and medical care payer marketplace. There are three major sources and one minor source of new entrants. The first is a set of twenty two health insurance co-ops that are federally backed and will be going live for the first time in two weeks:
In Maine, for example, co-op Maine Community Health Options is one of just two plans selling on the marketplace. Without it, the only option would be Anthem Blue Cross Maine.
“Are rates are lower in almost every product offering,” Maine Community Health Options executive Kevin Lewis says.
New Mexico’s co-op believes its presence has lead to lower rates for other health plans. Executive Martin Hickey says that, after competitors saw his plan’s rates, they ultimately lowered the prices that they would charge consumers in subsequent filings with the New Mexico Public Regulation Commission. “We started off as the lowest,” Hickey says, “And some others dropped their rates by as much as 30 percent.”
These co-ops are betting that they can run a very low overhead, Exchange focused business model where the goal is active pre-medical management of medical conditions. I would bet that at least a few of these co-ops will succeed in providing good services at reasonable prices to lots of people. I would also bet that there will be a few failures, and quite a few that are adequate but nothing special. As a final bet, I think at least a few of these co-ops will use the Health Quality Partners model of actually talking to people face to face as a high value added tool. The big risk of these plans is that they are initially small and they don’t have detailed data for model building. I would be shocked if none of them don’t experience significant first year losses that are solely due to massively misjudging the risk pool that buys their product.
The next major source of new insurers are incumbent insurers who are expanding product lines to cover individuals for the first time or expanding geography or both. Obamacare made the rules of offering products on the Exchanges fairly clear and straightforward once a plan is approved at the state level as a “qualifying health plan”. The regulatory burden of filing for a new product or a new area to sell into is fairly light. The reasonably low costs of regulation plus the promise that there are millions of customers who will have federal dollars attached to them have made insurance companies who have already offered government health insurance (Medicare Advantage, CHIP, Medicaid managed care etc) or group insurance (what our employers offer) be willing to expand into the individual market. Some of the major national players have not expanded as much as the Administration probably hoped, but there are new players offering new products in new areas.
The third group is related more to the group market but it will have some long term impact. There are a number of hospital groups that are transitioning from being only hospitals and service providers to being integrated health care provider payers. There have always been a few of these organizational structures in this country. Kaiser is the biggest and most notable. As I mentioned previously, providers are both consolidating and being forced to take on more population management risk. The biggest providers in the ACO model are effectively being told to manage statistical risk and that is an insurance company’s core competency, so providers are becoming insurance companies too. The provider chain near me that is doing this conversion is only offering government and commercial group insurance this year, but they could expand. The basic bet is that they can save on money by narrowing networks significantly.
The final set of new providers are minor and small. As far as I know there is a single new insurance company in New York that is looking to disaggregate and disintermediate the entire health care experience by bringing in synergestic, synthetic thinking that drives disruption across multiple paradigms or some other such buzz word bingo winner. If it works, great, but I don’t think there are too many legacy costs or embedded inefficiencies that a new payer can avoid.
Depending on how one defines the market space, the payer market with the introduction of Co-ops, expansions of current insurer’s service areas and product offerings, conversion of providers to provider-payers and new entries could become even more fragmented. If this is how the market is analyzed in the real world, providers will see a significant increase in comparative leverage as they can play payers off each other. However, if one includes the tens of millions of people who are negoatiating for themselves in the current GINI summation, and move those millions into only one or two hundred buckets, payer concentration will also increase despite the new groups entering markets. If that is the case, providers will be played against each other to offer better prices.