Churn by product segment

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. 

 

 

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13 replies
  1. 1
    Eric U. says:

    if everyone has preventative programs, it doesn’t really matter who paid for them. Of course, you still have to get people to follow the preventative programs. Which isn’t all that easy. My health insurance company keeps trying to get me to talk to them about preventative measures for high blood pressure. Seeing as how I am in the care of a competent doc who sees me regularaly, I don’t see the need to talk to a rental nurse who is really just there to cost my employer money. For other people, that might not be the case

  2. 2
    catclub says:

    @Eric U.: “if everyone has preventative programs, it doesn’t really matter who paid for them. ”
    If the people paying for them cannot show results, they will stop paying for them. So it matters a lot.

    Or at least, it sure explains it to me.

  3. 3
    Eric U. says:

    there is that issue, but in the case of my employer, who is self-insured but has an insurance company administering the account, the year to year pricing can be set based on participation in the program. I expect most employer-based plans will be the same way. And I also expect that the preventative programs will become more or less standard fare.

  4. 4
    Roger Moore says:

    @Eric U.:

    if everyone has preventative programs, it doesn’t really matter who paid for them.

    Which is why the PPACA requires preventative care be included in compliant plans. If the law says you have to provide it, then insurance companies will start providing it. It’s a classic prisoner’s dilemma problem. Each company benefits if their competitors provide preventive care, but they also benefit by not providing it themselves. That results in sub-optimum results unless somebody like the government steps in and forces them all to do what’s in the best interests of the community as a whole.

  5. 5
    James Barnett says:

    I don’t buy it: Sure churn means people go out of plan over time and are therefore lost to that particular plan’s preventative programs. Perhaps that works against preventative care in the wild West pre-Obamacare days. Now, in theory, every compliant plan will have similar preventative programs. Are you saying that company A won’t benefit from the improved health of the new members they receive from company B (and vice versa)?

  6. 6
    Bill B says:

    The churn I took this morning had a lot of floaters in it but they went down after I flushed twice.

  7. 7
    Roger Moore says:

    @James Barnett:

    Are you saying that company A won’t benefit from the improved health of the new members they receive from company B (and vice versa)?

    I think the point is that the payoff is far enough down the road that companies don’t benefit much from their own preventive care programs. That means we have to be vigorous in enforcing the preventive care mandate in Obamacare because the companies have an incentive to cheat if they can get away with it.

  8. 8
    jl says:

    Thanks for the hat tip, and for giving out some important info on churn. I guess for large groups it is about what I remember it.

    @Eric U.:

    ” My health insurance company keeps trying to get me to talk to them about preventative measures for high blood pressure. Seeing as how I am in the care of a competent doc who sees me regularaly, I don’t see the need to talk to a rental nurse who is really just there to cost my employer money. For other people, that might not be the case”

    I think the problem is that it might not be the case for many other people, not just some.

    There are ‘free market’ ways to make insurance companies internalize the long run benefits of providing more preventive care (whether it is explicitly labeled that or not), but they would require an extensive rewrite of state regulations that prohibit most side payments between insurers when a policy holder switches companies.

    I guess my concern is that even with minimum standards and regulations, they are on paper. What happens in real life. I have heard the phrases that amount to ‘well, that’s just what we say we do on paper’ from executives when talking about their company’s own policy on benefit design and standards of care written for marketing and staying out the news as dropping benefits. The prisoner’s dilemma issue still remains even with the ACA regs, companies will have an incentive to shirk. And there is a literature that measures the excess costs of care attributable to churn and changes in providers that often entails, and ‘patch ’em up and pass them on to Medicare’ approaches (which no way I can find now though copies are some place inside my computer).

    Edit: and I guess the shirking issue is to some extent addressed by giving people free visits for certain kinds of care. If people know about them, then they will come in, and provider and insurer will have to provide it.

  9. 9
    jl says:

    Thought it might be interesting for any stragglers who stop by to show what churn means in terms of net costs. Article I mentioned in previous thread by Warner and others (Financial implications of coverage of smoking cessation treatment by managed care organizations) has following results. Assuming pretty low turnover rate (churn) of 15 percent per year, and conservative assumptions that imply smoking cessation is merely extremely cost-effective rather than cost saving, they get the following:

    smoking cessation costs the individual firm about 63 cents per member per month, but if no turnover (churn) would cost 16 cents per month. That is quite a gap. And the gap is large enough so easy to understand why preventive treatments that might be cost saving would be so spread out to other firms by turnover that it would not pay any individual provider to offer it. Say the study’s base case estimate of net cost was 20 cents per member per month too high. Then smoking cessation would save system as whole 4 cents per member per month, but cost an individual organization 43 cents per member per month to provide. That is far outside the comfort zone for premium increases for just one little itty bitty benefit if others are not providing it.

    Edit: amounts seem small, but add them up for booze, obesity, lack of exercise, blood pressure, mental health, and multiply by a couple of hundred thousand people, you start talking some money.

  10. 10
    JoyfulA says:

    I’m surprised by all the prior churn in the individual market. When I first had enough money to buy health insurance, I bought Independence Blue Cross, and I stayed with them about 10 years until I had moved so far away that I had to mail stuff to them for reimbursement, which gets tedious. So I switched to the local variety. Then locally BC and BS had a falling out, each became full-service, and policyholders had to pick one or the other. The offerings were, for all practical purposes, identical, so I picked the one headquartered in walking distance rather than 10 miles away and stayed with them for another decade or so until I hit Medicare.

    Is my experience abnormal because Pennsylvania Blues are and have been nonprofits and community raters? Or maybe not that many people were self-employed and stayed that way so long? Or maybe I am loyal or a stick-in-the-mud?

  11. 11
    Richard Mayhew says:

    @JoyfulA: You’re wierd :)

  12. 12

    That over 50% annual churn for the individual market was what PBO was talking about with “If you like your plan…” There was nothing to like and people were looking desperately, but hopelessly, for alternatives.

  13. 13
    JoyfulA says:

    @Richard Mayhew: But I can spell!

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