The big health wonk news late last week was the decision by Blue Cross and Blue Shield of Minnesota to drop their broad network PPO individual market plans and offer only narrow network HMO plans on and off Exchange.
Minnesota’s largest health insurer, Blue Cross and Blue Shield of Minnesota, has decided to stop selling health plans to individuals and families in Minnesota starting next year.
The insurance carrier’s parent company, which goes by the same name, will continue to sell a much more limited offering on the individual market through its Blue Plus HMO.
BCBS/MN was offering a broad network PPO plan on the Exchanges. They lost a ton of money as the plan was priced high for three reasons. First since the plan was a broad network, each unit of service was being paid out at either standard or near standard commercial rates. Those rates are roughly 150% to 200% of standard Medicare rates. Secondly, the people who signed up for those plans tended to be sicker as they were attracted to access to most of the hospitals in the upper Great Plains. Finally, for the hospitals that were not in-network, since the plan is a PPO, the members had fairly decent out of network benefits that would allow them to travel nationally for care at high cost but no higher quality facilities than they had in network. Broad access, commercial rate paying PPO plans are Exchange money sinks.
They are money sinks even in states where there is no very low cost competitor. In Minnesota there is at least one Medicaid like managed care company, Health Partners offering plans on Exchange. Their baseline Silver plan in the Twin Cities is a narrow network HMO where they pay low rates and mainly attract healthy people who need coverage. They most likely pay a significant risk adjustment outflow but it works well enough.
BCBS/MN is converging their configuration on the plan designs that work well for the Minnesota market where the providers get paid a bit less than commercial rates. They’ll probably end up getting paid near Medicare rates, and the networks are fairly narrow with significant gate keeping HMO functions. These design features will knock off 10% to 15% of the premium cost and allow BCBS/MN to stay reasonably competitive once risk adjustment is taken into consideration.
The Exchange and subsidy design create the first segment of the Silver market. All subsidies on the Exchange are based onallowing an individual to buy the second cheapest Silver plan on the Exchange for a percentage of their income. …there is a strong incentive for insurers to offer at least a Silver plan that is either the cheapest two Silvers or very close to the subsidy cut-off. …
This segment in a competitive market should see a cluster of plans that are at the subsidy line plus or minus a couple percentage points. These plans are the first segment. They tend to be very restrictive in all modifiable aspects. HMO’s with gatekeeper and strict authorization processes are likely to be here while open access PPO networks are unlikely to be in this segment. The networks will tend to be very narrow as the pricing model is Medicare plus a small kicker…and insurance companies are avoiding the high cost providers if they can. These are the super narrow networks where the goal is to get a Silver plan that is either top 2 or really close to top 2 in pricing. They are aimed at people who are getting subsidies are extremely aware of every additional dollar they have to spend on monthly premiums. …
These segments were haphazardly defined in 2014 as companies were mostly shooting blind on both what the risk pools looked like and what their competitors’ strategies are. 2014 is a successful beta testing year. I think the Silver segmentation will be much clearer in 2015 and very obvious in 2016 as more data and experience comes into play.
I was off by a year, the convergence in configuration is happening in Minnesota in 2017 instead of 2016 when I thought it would have been obvious by mid-spring of 2015 of what was working and what was not working on Exchange.