Is the Individual Health Insurance Market Collapsing?
Is the individual health insurance market collapsing or just re-aligning itself? While catching up on some industry reading the other day, I was struck with the similarities I saw between the current situation in the individual marketplaces and previous market realignments we have experienced.
I remember back in the .com /.bomb days, while working for a software company that rode the wave, I read about how the collapse of the .com bubble was actually a realignment of expectations with proven revenue capabilities. If one could peer further into the future, they would see growth of Internet adoption and bandwidth speeds that would boggle the mind. Now as I look at the connected world of smart phones and the Internet of Things, that prognostication could not have been more correct.
Is the same thing happening with the individual health insurance market and the exchanges? The pattern seems to fit. With the passage of ACA and the somewhat rocky launch of Healthcare.gov there was an irrational exuberance that somehow the old rules wouldn't apply and all sorts jumped in with hopes of snapping up membership and government subsidized premium dollars as quickly as possible. Sound familiar? We had health Co-Ops, a number of which had executives running them with no health insurance experience. We also had many start ups that seemed to break the mold. For those in the industry, there seemed to be a herd mentality taking hold. With all the non-traditional newcomers, established players felt compelled to jump in with abandon, and sometimes less than thoughtful planning.
During this era, I was speaking with a number of health plan executives who had trouble answering my questions about how actuarial and underwriting would accommodate the new rules. Or how do you ward off adverse selection now that the doors are being swung open to a population that until now, had significant barriers to traditional individual insurance options? "We will get the young and healthy adults to offset the sick..." was the standard retort. Yet the young and healthy have been notoriously difficult to attract! Remember, we were all there at one time and I am sure everyone of us reading this article can relate a story that ends with - "how on earth did we survive our bad decisions to make it to adult-hood?" Well, after hundreds of millions of dollars spent on advertising for a still yet to be realized exchange enrollment goal, the young and healthy have not flocked to the exchanges across the country in the numbers needed to smooth the risk profiles required for the economics to work.
So what is a health plan executive to do with the news seemingly getting grimmer every week, and no clear direction coming from Washington on such vital funding elements as cost-sharing reductions? While some are getting out of the market like Northwell Health’s Care Connect and Aetna, other players like Centene Corp. and startup Oscar Health appear to be expanding their exchange business and betting on a brighter future. Even traditional players in the Medicaid business such as Dayton, OH based CareSource have been thoughtfully expanding their exchange business.
While government intervention in the economy traditionally skews the typical cost/demand curves of economics, I think it is safe to say that with high-deductible plans and private employer sponsored exchanges, the individual market as a whole is poised for continuous growth rather than complete implosion. I think we are seeing another case of the economic Darwinism that has so often played a hand in the U.S. economy. The innovative business models and the well-led organizations are making their moves. Some will survive, others will not. This is the grand design that has made the U.S. economy work for over 200 years. The individual insurance market will evolve in fits and starts through this process and turn into something only a few today can envision.
Those players who will win are the ones who realize the old rules still do apply. As a health plan you still need to understand your customers. You must respond to their needs at a market clearing price in the most efficient and effective way possible. As unsexy as that might sound, those guiding principles have been the underpinnings of successful companies’ time and again.
So if you are in the health insurance market, and particularly if you are doing business on the exchange; strap yourself in, be brilliant at the basics, nimble in your operations, and listen to your customers. It is going to be a wild ride until this realignment finally reaches its’ destination.