Very valued and insightful commenter JL raises a good point that I want to address:
I think in some posts, RM has, maybe unintentionally, exaggerated the turnover in the individual policy market and perhaps unintentionally, implied that it is not a problem in large group markets. I haven’t studied up for last several years, but in 90s through mid 00s, could be 20 percent per year, partly due to annual open enrollment, through company choices of who gets to compete, and enrollee choices of plan. The churn was high enough to make all but very effective preventive programs with very short term paybacks uneconomic for individual plans.
If I gave the impression that large (more than 500 individual contracts) group contracts have minimal churn, I do not intend for that impression to be made. Large groups have a bit less churn on average than small groups. But just looking around my office and thinking back a year to people within a few rows of my seat, let me describe the churn to the Mayhew Insurance employee health plan.
- One new member as a friend got married and brought her wife onto her coverage.
- One new member who finally decided to buy into coverage.
- Two new members as a colleague had twins.
- Lost a member because a mentor died
- Lost two members as a colleague retired and brought his wife with him.
- Gained three members as a friend brought his wife and kid onto our plan. Previously they were all covered under his wife’s plan.
- Gained a member as we had a new hire.
- Lost two members as a colleague left and we lost him and his son.
- Lost a member as a nasty divorce ended in an unaffordable COBRA situation for the ex-.
- Losing a member soon as my coffee buddy is a short-timer and ready to go on Medicare.
Churn happens, and it happens a lot in all insurance segments in the United States.
Large groups tend to have a bit less churn than small groups. As JL notes, 20% churn in a year is not unreasonable. Traditional Medicare has fairly low churn as the only options are death, leaving the country, or changing plans to Medicare Advantage. Medicare Advantage members will churn a bit more between different Medicare Advantage providers as they’ve already indicated a willingness to do non-traditional/non-default options. Medicare Part D drug coverage will see more churn. But all of these segments have low enough churn that preventative care with pay-offs of more than a year can make a straight forward business case.
Small group insurance has more churn as we’re dealing with smaller statistical units and noise is more apparant. They’re also more likely to start up or at least start offering coverage, and they are more likely to fail. Income based public programs such as Medicaid will have significant churn. Legacy Medicaid with multiple income/asset/eligibility checks a year could see 30% to 50% churn. Expansion Medicaid with continuous eligibility should see significantly less churn.
The individual market pre-PPACA was the highest churn segment with churn rates between above 50% a year. At that point, any preventative care with pay-off periods of more than three to six months fail as a business case.