We pay health insurers to perform four basic jobs for us: pricing risk, spreading risk, haggling with health care providers and processing our claims.
However, there has traditionally been a fifth element to running a successful health insurer: avoiding risk.
Before Obamacare became law in 2010, health insurers had built up a poor reputation for avoiding risk: denying coverage to the sick, rescinding policies after big claims, charging outsized overhead fees and allowing certain health plans to become death spirals.
Obamacare put an end those practices. But that doesn’t mean Obamacare put an end to health insurers’ risk-avoiding ways. Not at all.
My article this weekend about Anthem Blue Cross and Blue Shield’s “zero-premium plans” should make that clear. The plans have premiums so modest that low-income Hoosiers that receive a federal tax subsidy can apply the subsidy to the premiums and have no monthly payment for the coverage.
But they will have an enormous deductible–$6,350 for single coverage and $12,700 for family coverage. Those are the maximums allowed by Obamacare.
The New York Times ran a related piece this weekend, citing a McKinsey & Co. analysis that found that up to 7 million Americans could qualify for a zero-premium plan on the Obamacare exchanges.
Contrary to the Times article’s assertion that health insurers don’t plan to promote these plans, Indianapolis-based Anthem will roll out a marketing campaign about its zero-premium plans later this year.
Indiana hospitals think these plans are simply a way to shift the financial risk of these patients onto them. The likelihood of hospitals collecting $12,000 from a Hoosier family of four earning $35,000 is, indeed, remote.
“It’s not a lot different than when they were uninsured,” Doug Leonard, president of the Indiana Hospital Association, told me.
Naturally, Anthem sees things differently. It expects only relatively healthy Hoosiers will sign up for these zero-premium plans, which means they're unlikely to rack up a large amount of medical bills. In other words, the zero-premium plans are a way insurers can sign up lots of healthy customers.
That’s a good goal. Anyone who supports Obamacare or anyone who is trying to buy through the exchanges wants to avoid a death spiral in the exchanges, where only sick people sign up for coverage, pushing prices higher and higher every year. Insurers targeting healthy people means a broader risk pool.
And in defense of Anthem and other health insurers, health plans with high deductibles were one of the few ways they could absorb Obamacare’s new regulations—guaranteed issue, minimum required benefits—and yet still offer affordable prices. (Narrow provider networks and narrow drug formularies are two other strategies insurers are employing to keep prices down.)
But the prevalence of high-deductible plans in the Obamacare exchanges also signals that insurers are well-prepared to play within Obamacare’s new rules to seek out premiums (or tax subsidies) from those who won’t cost too much to their health plans. Meanwhile, health insurers can shift risk to someone else—in this case, health care providers.
Just look ahead a couple years. After 2016, Obamacare’s transitional reinsurance fund will end, meaning health insurers will no longer get supplemental payments to offset the cost of the influx of sick people into their plans. By that time, they will have both the incentive and the tools to woo the healthy while shunning the unhealthy.
They can craft super low-cost bronze plans and market them, while putting few promotions behind their richer silver and gold plans.
They can take a page from their Medicare Advantage playbooks, where insures like Louisville-based Humana Inc. and Minnesota-based UnitedHealth Group Inc. have offered gym memberships and other perks to attract healthier seniors into their plans.
They can make smart use of mobile technology and social media to attract younger customers, who tend to be healthier.
They could even, as one Indianapolis health benefits consultant told me, target industries with lots of small employers with young healthy populations. Here’s just one speculative example: Anthem could approach the IT trade group TechPoint to offer exchange-based coverage to its member companies—and their predominantly young, male workers.
Insurers who do this risk-avoidance best will prosper by attracting more customers and receiving larger amounts of Obamacare’s subsidies to cover their premiums. Anthem expects half of the premiums it collects in the exchange in Indiana to be paid by taxpayers, rather than by the less-certain payments of individual customers.
How’s that for shifting risk?
Hospitals, meanwhile, will bear more of the burden of collecting payments from low-income customers, while they also grapple with cuts in payments from the Medicare and Medicaid programs.