The Underdogs in the Health Insurance Market

The following is an excerpt from Navigant Healthcare’s Pulse Weekly. Click here for a complete copy of this week's article. 

I love college football, and I usually pull for the underdogs. I have no system for choosing—sometimes it’s the team that graduates a high percentage of its student athletes, or the team on a losing streak, or simply a school that’s small playing against a powerhouse. But I pull for David against Goliath almost all the time.

Going into last weekend’s college football match-ups, the Top 10 teams in the country were favored by an average of 16 points over their opponents. Oddsmakers had Baylor beating Iowa State by at least 37 and predicted 2 of the games would be settled by less than a touchdown. How did it turn out?

#3 Utah lost to USC and #9 Florida State lost to Georgia Tech, but otherwise, the oddsmakers were mostly right. Nonetheless, had I been betting for the underdogs, I’d have lost money.

In the health insurance industry, there are two classes of underdogs competing for its national championship: the CO-OPs and Plans sponsored by hospitals and health systems. Their situations are quite distinct, but they’re both underdogs.

The CO-OPs: Established via Section 1322 of the Affordable Care Act (2010), the Consumer Operated and Oriented Plan (CO-OP) program was intended to foster the creation of new consumer-governed nonprofit health plans to give consumers more choices. The federal government allocated $6 billion in loans to provide start-up and ongoing capital, but those funds were cut to $2.4 billion as a result of the American Taxpayer Relief Act of 2012 and other spending bills. The terms of repayment of the loans were stringent and qualifying for the loans meant CO-OPs agreed to operate primarily in the individual and small group insurance markets, the insurance industry’s riskiest. And by law, they were not allowed to spend money on recruiting the same way the powerhouses spend. Last week, one more CO-OP announced it was suspending operations bringing to 9 the number that have announced they’re shutting down. There are 14 still competing in the insurance bowl championship race as we count down to the opening day of the Marketplace enrollment this Sunday.  They’re underdogs. But they’re competing the best they can. (See Fact File)

Provider Sponsored Health Plans: Most medical groups, hospitals and health systems that sponsor health plans did so to round out their capabilities in care coordination. Their rationale was simple: at a minimum, the opportunity to manage health costs for their employees was an instructive vehicle for balancing financial risk with clinical processes, and it afforded their organization a hedge against the powerhouses that demand deeper discounts. Some of these became powerhouses in their markets but most are small and compete against national plans with deep pockets. Most are underdogs. But they’re competing.

Each week, they line up against teams with strong line-ups, deeper pockets, and they’re the underdogs.  They face big national and regional plans that can use their scale to make sure the underdogs can’t last through the fourth quarter. But the underdogs compete: they are not asking league officials at CMS for a different set of rules i.e. their touchdowns count as 9 points vs 6 for the powerhouses, or a shorter playing field. They want to line up and play the game per rules that are fair, knowing they’re the underdogs.

As the league officials, CMS has a tough job.  It’s not their design that underdogs lose nor, that powerhouses always win. They’re in charge of rules that keep the sport healthy. So contests between underdogs and powerhouses are destined to be part of the game.

Like the NCAA, CMS has its critics who argue it should change the rules of competition to favor underdogs. Some argue its rules already favor powerhouses and limit what underdogs can achieve. To its credit, changing incentives from volume to value, promoting innovative programs like accountable care organizations, bundled payments, and expanding coverage in Medicaid and through the marketplaces have changed the game for the better, but not without consequence.  The pursuit of expanded coverage that’s accessible and affordable is complicated, especially in our pluralistic system where employers, states, the federal government and individuals have unique and sometimes conflicting aims for their coverage.

Every year, like the NCAA, CMS reviews its own performance, and adjusts where it deems it necessary for the long-term good of the game. Theirs is an essential, often thankless role in implementing laws as passed while staying focused on the sustainability of a competitive health insurance market.

That’s the reality of the game being played: health insurance is a full contact sport with strong powerhouses and underdogs.

Paul

The opinions expressed in this article are those of the author and do not necessarily represent the views of Navigant Consulting, Inc. The information contained in this article is a summary and reflects current impressions based on industry data and news available at the time of publication. Any predictions and expectations noted herein are inherently uncertain and actual results may differ materially from those contained in this article. Navigant undertakes no obligation to update any of the information contained in the article.

©2015 Navigant Consulting, Inc.