Convergence and Blue Cross and Blue Shield of Minnesota

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.

And none of this should be surprising as some idiot on an almost Top-10,000 blog noted this market structure in June of 2014:

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.

 

 

 






13 replies
  1. 1
    Baud says:

    And now of this should be surprising as some idiot on an almost Top-10,000 blog noted this market structure in June of 2014:

    Pfft. That guy.

  2. 2
    Pogonip says:

    Not to worry, the Bauds of the market will fix it!

  3. 3
    Baud says:

    @Pogonip: I wish I could fix my blockquote.

  4. 4
    burnspbesq says:

    This is starting to look increasingly like a market failure. HMOs have their fans, but I have never been among them, and I don’t think I’m an outlier in that regard. If we get to a point where all that is available on the exchanges are HMOs, it will be time for government to act. The Swiss and Dutch systems start to look pretty attractive in that scenario.

  5. 5
    Davebo says:

    Having a hard time shedding a tear for insurers having a hard time but unlike most of them I do worry about the effects on consumers.

    It sucks being an industry that adds absolutely no value to it’s customers or the economy in general. It’s pretty sad when your business makes hairdressers look invaluable.

  6. 6
    FlyingToaster says:

    @burnspbesq: Narrow network HMO’s, sure. They should go the way of the dodo.

    HerrDoktor just changed jobs, and we went from a [legacy Romneycare] PPO to an HMO; the doctors are the same, the co-pay for preventive dropped (we used to have to pay for routine lab work, now we don’t) and all of our doctors are on it. I’m hoping the market leans to a wide-network HMO for most people.

    ChezToaster might be a bit weird because we had PCPs even though a PPO doesn’t require it. All of our specialists had been referred by our PCPs. When he was picking the new plan, I sent a list with all of the doctors we’d ever seen on it, and our local hospital, and they were all in the new HMO plan. The only benefit we lost was prescription reimbursement, which was his old company’s benefit, not the PPOs.

  7. 7
    TriangleUnited says:

    BCBS of NC was great insurance and ostensibly a non-profit here, but they had to raise their rates significantly in the past year, according to my wife, who’s in charge of buying health insurance for her medium-sized non-profit. Last week her Benefits agent came and strongly recommended that they switch to United, which has cheaper premiums for the staff than BCBS and supposedly (!) has more benefits. I’m sorry, but I just don’t trust United. I think at least one of her staff members will end up with some sort of nightmarish claim dispute in the next year after the switch is made. We *never* had a problem with Blue Cross. But a potential savings of $30K is apparently hard for her to turn down without due justification.As of right now, she has no reason to say no to United. (Sigh)

  8. 8
    burnspbesq says:

    @TriangleUnited:

    I’m currently stuck in the middle of a pissing contest between United and Novo Nordisk, so I’m not exactly a fan. That aside, United is OK.

  9. 9
    Prescott Cactus says:

    MPR Article

    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.

    Richard,

    Do you think this snowball could continue to roll down hill and BC/BS will pull out of the PPO market for small biz and unions in MN ? Elsewhere ?

  10. 10

    @Prescott Cactus: Small biz maybe (and I am speculating wildly out of my ass on that one). Mid-size and large group — hell no for two reasons.

    a) A decent chunk of medium and large group are self-insured so BCBS/MN and any other large insurer is just acting as an administrator with no money actually at risk.

    b) As we have discussed before, employment is a decent screen for health, so those employed groups are fairly healthy.

  11. 11
    RaflW says:

    Crap. I have a MN BCBS individual off-exchange plan. It is expensive, but it provides great coverage. I spend 7 or 8 weeks a year in Colorado taking slight but real risks snowboarding black diamond and double-black diamond ski runs and don’t want to navigate narrow network issues/out of network when out if state wirries, so I fork it over but feel comfortable about it.

    BTW, I left HealthPartners when ACA hit as the excellent (also expensive) plan I’d had there for over a decade went away.

    Argh I hate shopping for health insurance.

  12. 12

    I live in MN, and I have a cousin who posted about this on social media today, saying, “Obama care epic fail for the middle class.” Is this worth a rebuttal?

  13. 13

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