Texas: BCBSTX dropping PPOs, 367K enrollees may have to Shop Around for HMOs

Thanks to Don Kramer for the heads up:

News Alert – July 23, 2015
Individual/Consumer Markets
What to Expect for 2106 Open Enrollment Plans

On Monday, the Texas Department of Insurance gave Blue Cross and Blue Shield of Texas (BCBSTX) the clearance to announce a change in retail product offerings for 2016. We wanted to share this information with you first.

...There are some changes in the plans we intend to offer in 2016. Most significantly, we won’t be offering our Blue Choice PPO insurance plans for our under 65 block of business going forward.

We intend to offer other products, on and off the Marketplace. A new product has been filed that we believe will give you a flexible choice for your clients. We will be able to share information about that product if and when it is approved by the Centers for Medicare & Medicaid Services (CMS) closer to open enrollment.

...Currently, we have about 367,000 individual Texas members who will have their PPO plan discontinued in 2016. This number fluctuates monthly.

Around 148,000 Texas members are in grandfathered PPO plans that will not be discontinued. Our Blue Choice PPO network will continue to serve these members.

This change does not affect our product offerings for our employer group customers or Medicare members.

Our Blue Advantage® HMO network will remain. We are working to expand the numbers and reach of providers participating in that network.

We only had the first full year of ACA claims data for analysis this year, for 2014 claims. In the individual market segment in 2014, BCBSTX paid out more than $400 million more in claims than it collected in premiums. Losses that high are unsustainable, and we have adjusted our offerings – as many insurers have – to be sustainable in the new market reality.

Why is BCBSTX discontinuing the Blue Choice PPO?
For the past two years, BCBSTX has been the only health insurer offering an individual PPO plan in all Texas markets. BCBSTX found that the PPO is not sustainable at an affordable price due to anti-selection. BCBSTX will continue to offer other plan options in all 254 counties, on and off the Marketplace.

What will this mean for individual members who currently have the PPO plan?
BCBSTX will be transitioning affected individual members to another plan, so you will not experience a gap in coverage. You will also have the option of choosing a different plan during 2016 open enrollment.

Will there be a rate increase for HMO for 2016?
BCBSTX’s rate filings are currently under review by CMS, so that information won’t be available until rates are finalized and approved. BCBSTX pricing is designed to allow the insurer to offer sustainable products and services to its customers for years to come. A medical loss ratio (MLR) requirement is in place to protect consumers by requiring a high percentage of premiums to go to medical costs. If that requirement is not met, customers may be eligible for a premium rebate.

...Why couldn’t you just continue offering the PPO and increase the rate for it?
Under ACA, individual business is rated using a single risk pool, meaning all individual plans had to be looked at together. This means BCBSTX couldn’t just look at the pricing of the PPO separately. If BCBSTX had kept both the PPO and HMO, it would have added dramatic costs for every member with an individual plan.

Shopping for 2016 plans is expected to open Oct. 10, when insurers are allowed to publicly release the full range of plan offerings for the coming year. You will receive a formal notice from BCBSTX by Oct. 1 that will give you the details of your plan changes.

My takeaways:

  • 367,000 Texans currently enrolled in PPO policies via BCBSTX (whether on or off the ACA exchange) will have to move to an HMO (BCBSTX was apparently the only one offering PPO policies on the individual market in Texas until now).
  • There may still be PPOs available from other providers in some parts of Texas (Don says that he thinks Cigna offers one in some areas of the state), but it sounds like for the most part, HMOs are where these folks will be headed (title corrected from "will have to shop around for HMOs" to "may have to")
  • There's been a lot of talk over the past year about how one of the major changes that the ACA is having is pushing the individual market more and more towards "narrower networks" of doctors/hospitals/specialists (which may have already been happening prior to the ACA anyway; I'm not sure about that). This announcement by Blue Cross of Texas highlights & underlines that tendency: PPOs are on the way out, being replaced more & more by HMOs.
  • Moving to an HMO may be a good thing for many of these enrollees: The premiums are lower, so as long as you stay in network you should come out ahead. The question is whether "stayiing in network" actually proves to be practical or not.

The highlighted question above is the one which I had the most trouble understanding: If HMO enrollees were profitable but PPO enrollees weren't, why not simply raise the rates on the PPO crowd? I mean, they obviously wouldn't be happy about it and many might move elsewhere anyway, but wouldn't that make more sense than dropping the whole PPO line completely.

As Larry Levitt of the Kaiser Family Foundation explained, however, the answer above is accurate: If the only reason for losing money on PPO enrollees is because they're expensive to treat (as opposed to increased costs of delivering treatment), the insurer has to spread any rate increases across both PPO and HMO policies.

If I'm understanding this correctly, I think this is how it works:

  • Let's say that they have 100,000 HMO enrollees & 100,000 PPO enrollees, with avg. premiums priced at $400/month and $500/month respectively this year.
  • When crunching the numbers for next year, they realize that while HMO enrollees are costing $350/month (they're still making a profit), PPO enrollees are actually costing $600/month, so they're losing money on their PPO business (as well as the individual market overall).
  • Normally, they'd simply raise the PPO rates up to, say, $650/month to make sure they aren't eating a loss on that segment. This would suck for those enrollees who'd be looking at a 30% rate hike (while HMO enrollees wouldn't be raised at all), but they'd at least have the option of sticking with the PPO if they wished.
  • However, since their entire individual market (HMO + PPO) has to be looked at as a single risk pool, their only option would be to raise rates by, say, 15% on both markets ($460/month HMO, $575/month PPO). That would be better for the current PPO enrollees but worse for the HMO enrollees.

Of course, blaming the loss of PPO policies on the ACA itself is a bit disingenous (and par for the course). BCBSTX could take the latter course of action; their decision to drop PPOs entirely is a marketing decision, not a legal one. However, the bottom line is that this is gonna stir things up in Texas...which may not be such a bad thing; it forces people to actually pay attention to what's going on with their insurance situation and see what's available.

Of course, an awful lot of them will just blame Obamacare, period. Don also provided a link to BCBSTX's consumer version of this announcement (the one above is targeted at Texas-based insurance brokers).

A couple of other useful data points thrown in above:

  • Blue Cross of Texas still has 148K people enrolled in "Grandfathered" individual policies. Unlike "Grandmothered/Transitional" policies, which have either already been phased out or which have to be phased out over the next year or so depending on the state, "Grandfathered" policies can remain in force for existing enrollees for as long as those enrollees choose to stick with them. I don't know how many of these are still in force nationally, though I've spitballed it at around 2 million nationally. Texas has 8.4% of the national population, so 148K extrapolates out to about 1.8 million nationally. Of course, there are other grandfathered policy enrollees in Texas via other insurers as well, but this at least gives some idea of the range we’re talking about.
  • Apparently, October 10th is the date when the general public will be allowed to actually start window shopping around Healthcare.Gov for 2016 options and rates. Some state-based exchanges may allow window shopping earlier or later, however.