Lifestyle insurers in MCO markets: how do they work?

The Exchanges have encouraged new firms to enter the individual insurance market.  This is a good thing as we need to experiment with service delivery systems.  One of the experiments have been either new insurers or new subsidiaries of insurers entering the market with plans and marketing schemes that are heavily technology focused and optimized to give a good customer service experience.

Harken Health (part of United Healthcare) is attempting to drive down costs by a combination of no cost-sharing PCP visits at company owned clinics and lifestyle options.  They’re expending their footprint in Atlanta and Chicago.

Harken Health currently operates four health centers in Cook County, Illinois, where the insurer plans to open another six clinics by next year. Harken currently has six clinics in the Atlanta area, where it plans to open two more by 2017.

In addition to primary care, the health centers also offer everything from sessions with “health coaches” to classes in nutrition, tai chi and yoga.

Oscar, based in New York, has been losing money. They are requesting large rate increases to cover their losses:

Oscar is proposing to increase rates between 8 percent and 30 percent on individual plans, according to a letter sent to brokers….

Oscar’s strategy has been to use their web/mobile technology platforms to be the hip/cool/disruptive insurer for the next generation.

The market segment that both of these plans seem to be aiming for are people who are fairly young, active, technologically savvy and very healthy.

There is no problem with insurers segmenting a market and chasing one segment really hard.  Even with risk adjustment where plans that are comparatively much healthier make transfer payments to companies whose population are comparatively sicker, plans can make money.  Oscar in 2015 had massive risk adjustment liabilities.  Slightly more than a quarter of their earned premium revenues went out the door as risk adjustment payments.  This indicates that Oscar was disproportionately signing people up who were very low utilizers and were coded as very healthy.  This could be fine.  Given how Harken is marketing and pricing itself in the Chicago market, it seems likely it is attracting a similar type of risk profile (young and very healthy)

What I am struggling with is how do these types of insurers compete in markets where there is a large Medicaid Managed Care like Exchange insurer.  In Chicago, Centene Ambetter’s unit is the dominant low cost insurer.  It has a narrow network, Medicaid like HMO product as the 2nd Silver.  An HMO will self select for healthier people than a PPO, and a very narrow network will select for healthier people than a not so narrow network.   For a 40 year non-smoker, that plan costs $198 while the least expensive Harken plan costs $279.  That is a subsidy gap of $81.  Centene has been paying in significant risk adjustment transfers but it has been profitable.

Centene’s risk adjustment payments as well as plan design strongly support the idea that they are attracting a very healthy population.  They are attracting the people who have a low willingness to pay but a high subsidy due to low to medium income.  They are getting people who want insurance for either the stress relief of having insurance to take care of moderate sized problems or they want insurance to avoid paying the mandate.

So if Centene is attracting healthy people, Harken is attracting healthy people and both are paying large risk adjustment transfers, why is Centene making money and Harken probably losing money in Chicago?  Assuming a hypothetical individual could be covered by both insurers for the same treatment, Centene is paying significantly less per service than Harken because Centene’s basing its provider contracts on Medicaid rates instead of commercial or Medicare rates.

Centene and other Medicaid like Exchange providers are targeting roughly the same type of population but since they are much cheaper post subsidy, they are probably getting a far larger population to amortize their fixed costs over plus any service that they do need to pay for, they are paying for at a lower rate.

From here, I am having a hard time seeing how plans that have a “lifestyle” component can compete against Medicaid like Exchange providers.  Maybe it is different off-Exchange where everyone is paying full premium and “cheapness” is not a strong selling point.

 






10 replies
  1. 1
    Walker says:

    Oscar’s strategy has been to use their web/mobile technology platforms to be the hip/cool/disruptive insurer for the next generation.

    Sigh. It is amazing how fast people have lost the lessons of the last tech bust. WebVan was such a great case study of how tech does not automatically give you an advantage in a low-margin industry that requires a lot of specialized expertise (in this case, groceries).

  2. 2

    @Walker: I’ve been skeptical of Oscar for a while now.

    I think their business model could have made sense in a world where there was mandatory coverage requirements but no back end risk-adjustment. There a very aggressive cherry pick could be worth a lot of money. But with risk adjustment, the insurers actually have to be good insurers instead of good risk choosers.

  3. 3
    NotMax says:

    plans and marketing schemes that are heavily technology focused and optimized to give a good customer service experience.

    That one phrase alone deserves a nomination for the Bloated Boardroom Bloviation award, in the Tinseled Tongue category..

  4. 4
    benw says:

    The market segment that both of these plans seem to be aiming for are people who are fairly young, active, technologically savvy and very healthy.

    No shit. I can’t wait for insurers to chase my segment – middle-aged people with expensive, long-term care!

  5. 5

    @benw: There actually are a couple of plans that do that to some degree. Some insurers are running Diabetes focused plans for Type 2 diabetics as they think they either have good provider pricing or a better way so that between premiums and risk adjustment revenue, they can make money.

  6. 6
    Unknown known (formerly known as Ecks, former formerly completely unknown) says:

    At first I misread the headline as “lifetime insurers”.

    And I thought “well, why not? If there are health care interventions that take multi-years to pay off (better screenings or what have you), why not sign people up for slightly cheaper insurance on a multi-year deal, and take advantage of capturing the value from those efficiencies”.

    Or is that forbidden by the ACA? Are you allowed to sell a plan for longer than a year?

  7. 7

    @Unknown known (formerly known as Ecks, former formerly completely unknown): Single year contracts only… a 1332 waiver could create multi-year markets which would be a very good experiment to internalize gains based on reduced churn.

  8. 8
    Aardvark Cheeselog says:

    From here, I am having a hard time seeing how plans that have a “lifestyle” component can compete against Medicaid like Exchange providers.

    How does $81/mo compare to a gym membership? I’m pretty sure it would cover 8 classes/mo at a yoga studio. Maybe Harken thinks there are enough young, healthy, lower-income buyers who might make that calculation?

  9. 9
    pseudonymous in nc says:

    I’m okay with ‘lifestyle insurers’ in very strongly regulated systems, where there’s a high floor for what’s covered and uniform reimbursement — that’s how insurers in multi-payer systems tend to market themselves, at the margins. But in the US context, they just seem indulgent and at worst, counterproductive, because they tap into the worst aspects of American special-snowflake-ism that need to be offset with bigger risk pools.

    (Same applies to doctors who don’t take insurance, want a monthly subscription from their patients, and basically market themselves to healthy affluent people. Fuck that shit.)

  10. 10
    Prescott Cactus says:

    @Aardvark Cheeselog:

    How does $81/mo compare to a gym membership?

    And how many people don’t bother to fully utilize their gym membership ? One factor I would consider in picking a gym membership would be location.

    Harken Health currently operates four health centers in Cook County, Illinois, where the insurer plans to open another six clinics by next year.

    This is the size of Cook County;
    Area: 1,635 mi
    Population: 5.241 million (2013)

    Is Harken Health’s 10 locations enough to really make a difference?

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