Thursday, July 17, 2014

"Biggest Insurer Drops Caution, Embraces Obamacare"

Kaiser Health News is out with that headline today reporting that UnitedHealthcare is expanding its Obamacare exchange presence planning to sell polices "in nearly half the exchanges next year." The story goes on to report that United's leadership is saying the new public marketplaces look sustainable.

There may be more to it than that.

  • A carrier laying back the first year will have the advantage of coming into the market after the first year carriers, particularly the big Blue Cross plans, have harvested most of the initial market share and with it all of those first year people who were pretty sick and wanting to take advantage of the new Obamacare underwriting reforms to finally get themselves covered. Yes, these people can change carriers the second year but they likely won't––particularly if they are sick and worried about their provider relationships.
  • United currently has a lot of non-compliant individual business in these states. While carriers can continue the pre-Obamacare cancelled policies for another two years I don't know of any insurers that are. If United wants to hang on to the remainder of its non-compliant individual legacy business in the insurance exchanges––as well as pick-up other carrier's cancelled business––this is their opportunity to do so. The legacy policies are a relatively better health risk than those first year Obamacare enrollees, having already passed the pre-Obamacare underwriting requirements. And by being able to reissue these policies in the exchanges, United will be able to charge these existing customers the higher Obamacare rates.
United is quoted as saying they have far more information than they did a year ago. That is true but mostly for knowing just where the competitors are in the market. But it's only been a very few months since the Obamacare enrollment surge occurred in the last month of open enrollment––many of these people had May 1 effective dates. No one has any credible claim data yet to really be able to assess the first year enrollment.

As I have said on this blog before, any health insurance company in the individual and small group business has to play in the new Obamacare world. Obamacare is a monopoly. For not only the individual, but also the small group market, there is no other way to participate in the marketplace without playing in Obamacare.

But there are different ways to approach the market.

As the United CEO said in their earnings conference call today, "This [public exchange] approach is consistent with our long stated plan to take a prudent first year position and then build and expand in 2015 and 2016 as these markets become more established."

United's strategy of laying back a year letting the other guys pick-up the first year sick people and then making sure in 2015 to be able to keep and compete for the more healthy pre-Obamacare legacy business looks like a very savvy underwriting move to me.

The new health law does contain a risk adjustment system that is supposed to discourage any risk selection strategies by insurers. But if the experience with risk adjustment in Medicare Advantage is any indication, there is plenty of room for improvement.

I am sure UnitedHealth will now get plenty of plaudits from the administration and Obamacare supporters for expanding their public exchange presence arguing this announcement is proof of the new law's sustainability. So, on top of being a savvy underwriting move it will also turn out to be a shrewd political move for UnitedHealthcare––a division of United is also the Obama administration's lead federal health insurance exchange contractor.

Think about it. They implement an old-style underwriting/risk selection strategy and the Obamacare supporters applaud them for it!

Savvy and shrewd.

Sounds like something out of Netflix's House of Cards.


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