BLASPHEMY: Could FEWER carriers in the market actually be a positive thing??

I know, the headline is clickbait, but hear me out; lemme play Devil's Advocate for a moment here.

Last week, when writing about Phoenix Health Plans becoming the latest carrier to drop out of the Arizona exchange, I noted that...

Ironically, this may prove to have a silver lining, according to one expert:

If Cigna decides to stick with the exchange marketplace, it will have access to a solid mix of healthy and unhealthy patients, said Jim Hammond, publisher of the Hertel Report.

"The first question is, will Cigna stay in," Hammond said. "If Cigna bails, then we have a real problem and the state and federal officials are going to have to figure out what to do about it. They've made this mandate and there's no way for people to actually meet the mandate."

Once an insurance carrier gets a decent mix of healthy and unhealthy patients, and targets the unhealthy patients with special programs, then it should be fine, he said.

I didn't really make a big thing out of it, but thought it was an interesting perspective.

Today, however, I found a statement from the CEO of Access Health CT (the Connecticut exchange), in response to the news that ConnectiCare, which had their indy market rate hike request denied by state regulators, is now suing the state over that decision while also threatening to drop out of the CT exchange entirely if they don't get the hike that they want:

It has been a tumultuous year for Connecticut’s state health insurance exchange, but the latest – and most significant – blow could come Monday if its largest insurer decides not to offer plans next year.

The insurer, ConnectiCare Benefits, is facing a Monday deadline to decide whether to leave the exchange in 2017 after a Superior Court judge in New Britain blocked a motion Friday afternoon that would have given the Farmington-based company more time.

Whether ConnectiCare will remain on the exchange has not been determined, and potentially could be decided based on how the state Insurance Department rules on a last-minute appeal submitted by the insurer Friday evening.

The appeal asks the Insurance Department to reconsider its decision to set ConnectiCare’s health insurance plan rates on the state exchange, Access Health CT, at lower-than-requested levels in 2017.

I'm sure I'll be writing a separate post soon about whether ConnectiCare drops off the exchange in the end, but for the moment, I wanted to focus on a key part of the Access Health CT statement:

Hartford, CT ( September 7, 2016) - Jim Wadleigh, CEO of Access Health CT (AHCT), today released the following statement in the wake of ConnectiCare filing a lawsuit against the state and threatening to leave the exchange:

“Our number one job at AHCT is to focus on the consumer and to make sure we are doing everything we can to provide quality healthcare coverage to as many individuals as possible. While we don’t comment on lawsuits, I will say that if ConnectiCare does decide to leave the exchange we’ll adapt to that new landscape.

While it’s true that competition benefits the consumer, in this case there could potentially be a silver lining for the residents of Connecticut. Anthem could create a more diversified risk pool which could help them control and help stabilize the cost of the various policies it offers to customers throughout the state.

The Affordable Care Act represents one of the biggest social policy changes of our lifetime. The implementation of this policy requires everyone, including us to adapt – especially early on – to the changing landscape, and to make sure that we meet the challenges the law presents to us in a way that provides the most consumer-friendly experience possible. That’s how we view this development: it’s a challenge. And we will meet it.”

This is basically the same thing the Hertel Report guy said..and if you think about it, it makes sense.

Remember, the ACA's Medical Loss Ratio rule (80% of all premiums have to go towards actual healthcare, leaving only a 20% maximum margin for administrative/operational costs) already does a pretty good job of keeping carriers from outright gouging enrollees...although that only comes into play when the carriers would otherwise be spending less than 80% on healthcare claims. In cases where they're already spending more than 80%, it's kind of moot...and for the past couple of years, many carriers are at 100% or higher, which is the main reason some of them are pulling out of the market next year in the first place.

In other words, unlike other "retail" markets where more competition is generally considered to automatically help keep prices down, there's only so much that more players can do in the individual health insurance market. If everyone is already losing money, adding one more to the mix isn't gonna make anyone else drop their rates further.

The risk pool mix, on the other hand, has a lot of control over rates. If one carrier gets stuck with a bunch of expensive, sickly folks while the other gets the cream of the crop, that's gonna have a much bigger impact on premium rates for each. On the other hand, if one carrier ends up with a large chunk of each, they'll have a more stable risk pool and will presumably have less volatile rate changes year to year.

Taking this logic to the extreme, both the Hertel Report publisher and the CEO of one of the most successful ACA exchanges are both essentially arguing that LESS competition would be HELPFUL to keeping premium rates down, while also helping maintain continuity of care...because you'll be slicing an already-small risk pool into fewer slices, thus making it larger and more diverse.

This is also basically the argument that Aetna was trying to make when they issued an ultimatum to the federal government over their attempted merger with Humana: Let us merge and we'll stick around and even expand. Don't, and we're bailing.

I'm not sure that this argument holds true in every case...after all, California and some other states have over a dozen carriers apiece and seems to be doing just fine, and giving a single carrier a complete monopoly across an entire state would certainly NOT be a good idea, even with the 80/20 MLR rule in place..but the general point is food for thought.

UPDATE: As farmbellpsu reminds me, of course the ACA's risk adjustment program is supposed to be in place specifically to resolve the scenario described above, so I'm not sure how valid this argument is either...but it's at least worth noting.