Smaller insurers with experience in Medicaid, such as Centene Corp. and Molina Healthcare, are outperforming the broader insurance industry on the federal health exchanges. Their success is putting a spotlight on their business model as the Obama administration and other insurers seek to stabilize the fledgling individual market.
If Medicaid-like plan features become the norm, consumers and medical providers would be substantially affected. Such plans are often popular in the exchanges for their low premiums, but consumers have criticized limits on their access to medical providers such as doctors. And physicians fault the plans for low reimbursement rates.
Still, the financial success of these plans stands out as health insurance marketplaces for individuals face mounting pressure. The nation's largest insurer, UnitedHealth, dropped out of more than three-fourths of the state exchanges it participated in last year. Analysts estimate the overall industry suffered losses in the range of $5 billion last year.
Centene and Molina, meanwhile, not only profited in 2015 from their exchange business, they are considering expanding, executives outlined on recent earnings calls.
Replicating or at least matching the Medicaid plans' profits will be paramount for both their competitors and the Obama administration, since insurer participation in the exchanges is a key metric for gauging the success of the 2010 federal health insurance overhaul. The law aimed to establish competitive marketplaces where consumers could choose between an array of plans.
"Plans that have experience in Medicaid and understood [that market] faster are now doing better taking care of this population," said Ceci Connolly, president of the Alliance of Community Health Plans, whose membership includes several Medicaid-managed care plans, which contract with states to provide coverage.
Many insurance executives mistakenly thought newly insured exchange consumers would behave like workers covered by employers, but it turns out that exchange consumers are more like Medicaid enrollees, Connolly said.
Many other insurers are struggling to adjust to the new market. More than 650 counties may have only one insurer on the exchange this year, the Kaiser Family Foundation found.
Medicaid-focused insurers fared better than any other type of insurer in 2014, according to the McKinsey Center for U.S. Health System Reform. Its analysis documented losses across all types of plans — but while nonprofit cooperative and provider-led plans saw negative margins in the double digits, Medicaid insurers saw losses of just 2.7 percent.
The administration is set to highlight the exchange practices of Medicaid plans, among others, at a June 9 forum. “One theme that’s consistent is that success in the marketplace requires a different approach to providing care than was required for success in the old individual market,” wrote federal marketplace CEO Kevin Counihan in a statement.
Medicaid managed care companies cover about 55.3 million Americans, about 77 percent of the country's Medicaid beneficiaries. The plans curb costs by encouraging preventive care and offering limited provider networks of doctors and hospitals.
Molina and Centene do that in the new exchanges, too. They attract customers already familiar with their brand and limit their exchange participation mostly to states where they already offer Medicaid plans.
“It's an extension of our Medicaid business,” said J. Mario Molina, president of Molina Healthcare. “We’re focused on customers who had been on Medicaid, who may have been our patients. We want to give them the opportunity to stay here.”
Medicaid-like plans use narrow networks of providers which allow insurers to hold down costs. Many plans participating in the exchanges are adopting this model.
A spokeswoman for America’s Health Insurance Plans, the industry's lobbying arm, emphasized that the success of Medicaid plans is driven by their low-cost offerings, given how price-sensitive consumers are. But Clare Krusing of AHIP also cautioned against the idea that the exchanges might become a second Medicaid.
Experts, including Connolly and Joe Antos, an American Enterprise Institute scholar, said consumers might not dislike narrow networks if they are matched with better care coordination and lower prices.
Medicaid managed care companies are accustomed to negotiating low rates with providers, so they may be better positioned to negotiate their exchange payments, said Antos.
Antos explained that a hospital administrator will expect higher rates from a big insurer like UnitedHealth, which pays more for employer-based coverage. "With Molina or Centene, they're already down at rock bottom, and they can say, 'We're going to bring in a lot more people and we can pay you a bit more.' That sounds like a good deal,” Antos said.
Narrower networks may also make the plans less inviting to sick customers, said Katherine Hempstead, a Robert Wood Johnson Foundation senior adviser. Many exchange insurers say unhealthy patients are driving premiums up.
Both Molina and Centene customers use less medical care than those covered by competitors, according to a review of insurer data by Hempstead.
Ed Haislmaier, senior fellow at the Heritage Foundation, attributes customers' lower use of care to the design of benefits. The plans often charge higher copays for emergency room visits to encourage consumers to skip costly hospital services in favor of cheaper care elsewhere. Conversely, the copays are lower for primary care compared to their competitors’ plans.
“This is a population that when they need care, they go to the emergency room. You’re going to have to change that behavior” to limit costs, Haislmaier said. “And [Medicaid plans] understand that population.” Haislmaier says he expects Medicaid-like offerings to capture a growing share of the market.
“If nothing changed and this thing just worked itself to an equilibrium … you're probably left with one or two insurers in both states that look like Molina or Centene; maybe three or four in a big state,” he said. “It's a very different program than what the proponents thought they were designing and what people have expected. It is a niche market.”