From Charles Gaba:
we won’t be offering our Blue Choice PPO insurance plans for our under 65 block of business going forward…..
Currently, we have about 367,000 individual Texas members who will have their PPO plan discontinued in 2016….
Our Blue Advantage® HMO network will remain. We are working to expand the numbers and reach of providers participating in that network.
We only had the first full year of ACA claims data for analysis this year, for 2014 claims. In the individual market segment in 2014, BCBSTX paid out more than $400 million more in claims than it collected in premiums. Losses that high are unsustainable, and we have adjusted our offerings – as many insurers have – to be sustainable in the new market reality.
Why is BCBSTX discontinuing the Blue Choice PPO?
For the past two years, BCBSTX has been the only health insurer offering an individual PPO plan in all Texas markets. BCBSTX found that the PPO is not sustainable at an affordable price due to anti-selection. BCBSTX will continue to offer other plan options in all 254 counties, on and off the Marketplace.
Charles asks a good question
The highlighted question above is the one which I had the most trouble understanding: If HMO enrollees were profitable but PPO enrollees weren’t, why not simply raise the rates on the PPO crowd? I mean, they obviously wouldn’t be happy about it and many might move elsewhere anyway, but wouldn’t that make more sense than dropping the whole PPO line completely.
There are a few things going on here from an insurance strategy side. The first is that total claims expense is the product of the number of services billed and the average price per particular service. This the key claims equation and insurers try to do quite a lot of things to minimize one or both components of the equation.
HMO’s, all else being equal, have lower utilization than PPOs. HMOs use the primary care physician as a a gatekeeper and care manager so for anything expensive, the patient has to go through the primary care physician first. The PCP will divert some proposed care from high cost centers to lower cost centers, as well as discouraging low value/pointless procedures. PPOs have no requirements for pre-approval. On average, two identically healthy populations will see more care in a PPO plan.
Secondly, HMOs will have lower cost per service than a PPO plan, all else being equal. HMOs only pay claims to in-network providers that have a discounted rate contract with the insurer. PPOs pay claims to any and all providers. The PPO pays a much higher percentage of the claim for an in-network provider than for an out of network provider. For instance a PPO might have a $1,250 in network deductible but a $3,000 out of network deductible. The PPO might pay 80% of the next $5,000 of an in-network claim and then 100% after that while the PPO would pay 50% of the next $14,000 for the out of network claim before paying usual and customary.
PPO plans will see people who have common conditions go out of network to high cost providers when there was no good medical need to do so. BCBS of Texas switching to an HMO model is looking to reduce both the cost per service and the number of services billed by switching away from the PPO. These are common considerations for plan design and these are common trade-offs.
The wider business strategy is a simpler one. All else being equal, a less restrictive plan will have a slightly sicker population than a more restrictive plan. PPOs are the least restrictive common plan design (the peanut gallery can stop chiming in about indeminity plans) while HMOs are very restrictive. If BCBS is offering the least restrictive, broad network plan that is also the only PPO on the market, it is highly likely to self select a fairly sick population compared to the other insurers.
Reinsurance and risk corridors can help mitigate these problems in the short term, but in the long term, being the only offered of a desirable to sicker than average people product means eating a lot of losses as the subsidy pricing design is optimized to chase after fairly healthy people who are monthly premium sensisitive and able/willing to switch plans for $5 per month.