SWPA under AHCA because of UPMC

Southwestern Pennsylvania is one of the few regions on Healthcare.gov that might be better off under the current Republican AHCA than the ACA. Most regions are worse off including my new home state of North Carolina. But what is different in Southwestern Pennsylvania?

Western Pennsylvania has very low cost insurance. Bronze plans are available from anywhere for free post age based subsidy less than $50 after the subsidy is applied up to about age 53 with a 3:1 age band. After that Bronze coverage gets expensive. Below is a picture of the post-subsidy prices for a 21 year old for the least expensive Bronze plan from my former home county (Allegheny) to Balloon-Juice World Headquarters in Bethany, West Virginia and then across the Ohio River to another soccer field.

So what’s happening? My former employer, UPMC, is what’s happening. Everything I’ll say can be found in public files. University of Pittsburgh Medical Center is both an insurer (where I worked) and a hospital/doctor owning entity. It is getting to be a big deal and it is throwing its weight around in a successful attempt to fracture the Southwestern Pennsylvania payer market.

They offer three separate networks in Western Pennsylvania. I spent eight months of seventy hour weeks in both 2013 and 2014 building and maintaining those networks so I am fairly familiar with them. One network (Premium) is the broad network that looks a lot like the standard commercial network. UPMC pays providers a fairly high rate. It is a network used in the entire UPMC service area of Western and central Pennsylvania. If we look at the network pricing for the West Virginia and Ohio counties, the insurers probably pay their docs and hospitals similar rates as UPMC Premium.

So Premium is not the story. The story is in the the other two networks. The first network is “Select.” It is a narrow network based on UPMC owned hospitals and doctors plus a couple of community hospital chains in the counties surrounding Pittsburgh. This network was introduced in 2014 as a low cost network. It is offered in five counties in and around Pittsburgh. The other network is Partners which is made up of overwhelmingly UPMC owned physical health providers with a few gap fillers. It is offered in counties where UPMC owns a hospital including Allegheny County where Pittsburgh is located.

Both of those networks pay very low rates to their providers. So that helps in producing low premiums.

Additionally, UPMC has been losing money on Exchange. They projected to lose money in 2017 on the individual market when they set their rates. They have not been losing as much money as Highmark but they have under-priced their products for strategic reasons and then adopted, in my opinion, a non-optimal pricing strategy that creates a smaller and sicker risk pool.

So there is a combination of a company that has a narrow, low cost network plus an intention to buy market-share by selling products below cost. That is why Southwestern Pennsylvania has a chance of being not significantly worse off on the private individual market under AHCA while many other regions are guaranteed to see many people far worse off on the individual market.

It is an unusual combination of events that are unlikely to be widely replicated. As long as UPMC is offering either or both of Select and Partners network at current provider fee benchmarks, Southwestern PA will be one of the lower cost regions in the country but that discrepancy would have narrowed slightly as UPMC increases premiums to become profitable on Exchange.

8 replies
  1. 1
    Another Scott says:

    Thanks for the explanation.

    An aside:

    It seems to me that if the UPMC system as a whole is profitable, or at least not ending up in a hole at the end of its FY, then there’s no reason why one part of the system can’t continue to be a low cost but money losing entity. This mania in business that every part of an enterprise has to make money or it will be ended has never made sense to me.

    Businesses have charters from our society to exist and have certain legal protections in exchange for operating in the public interest. The system was intended to do more than guarantee profit, or allow companies to do whatever they want in pursuit of maximum profit. “Somehow” that bargain has been buried over the last 37+ years… :-/

    Yeah, there are pathological cases that we need to discourage (large, entrenched, monopoly operators running at a loss to prevent competition from upstarts), but those would not seem to apply here. And medical care is different from cars and widgets anyway.


    Thanks again.


  2. 2
    germy says:

    Have you seen this?

    Actual experience with HSAs, which were introduced in 2003, shows that overall spending on medical care does go down, but not necessarily for good reasons. In the first year or two, HSA holders cut back on everything, including screening exams and other preventive care that could reduce expenses in the long term, even when these were exempt from the deductible. ER visits went up.

    It is disturbing that HSA holders are making bad choices by eschewing good health care. My concern is that, without the limitations imposed on their choices by traditional health insurance, they will make worse choices by opting for bad health care.

  3. 3
    dr. bloor says:

    Just out of curiosity, how do the “low rates” in the Premium and Partners compare to the Medicare benchmarks?

  4. 4
  5. 5
    glory b says:

    As a Pittsburgh resident, “…getting to be?” I think it’s there.

  6. 6
    Tom Hamill says:

    That title makes me think of “Worthwhile Canadian Initiative”

    Keep up the good work.

  7. 7
    mainmata says:

    I used to work at UPMC as a nurse’s aide during summers when I was home from college. At that time, it was called Presbyterian-University Hospital. As a teaching hospital, it was a great place to work.

  8. 8

    @glory b: In Allegheny County it has always been a big deal. In Western Pennsylvania, it has only been in the past 7 years or so it has really started moving out of its base of buying distressed community hospitals to act as feeders to Oakland.

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