Clear structural flaws have emerged in the design and function of the public health exchanges, evidenced by both payers and insurance coops financial struggles. As the marketplace evolves, however, executives at investment banking firm Cain Brothers predict market conditions will inform a new type of payer, insurance design and consumer suited to success.
Here are three thoughts on public health exchanges from Cain Brothers' executives.
1. Turbulence of public exchanges isn't surprising. For payers, the risk pool on public exchanges has presented a fundamental problem. Payers that used traditional medical use patterns to price policies set premiums too low to cover the cost of members' medical claims, causing their medical cost ratios to spike. As a result, payers have suffered significant losses., Given the fact that it's much more difficult to calculate risk on the government exchanges, payers are deterred from joining public exchanges. Aetna, Highmark, Humana and UnitedHealthcare have all left exchanges in various states due to financial losses incurred on the exchanges. As insurers desert government marketplaces the number of counties at risk of having just one insurer to choose from has risen dramatically, from 225 counties in 2016 to 650 in 2017.
At the same time, the high risks of offering health insurance on the public exchanges has created a substantial business opportunity for innovative companies willing to test risk-based business models. Executives at Cain argue that better program design and care management could reduce risk pool uncertainty and make health insurance more affordable for consumers. Changes to the overall design, they argue, could potentially reinvent health insurance and delivery across the individual, group, commercial and governmental sectors.
2. But BCBS of Florida gets it right. Blue Cross Blue Shield of Florida has achieved both significant member enrollment and profitability on the exchanges. According to Cain Brothers' estimates, Florida Blue had approximately half a million members enrolled on exchange products in 2015. More than 90 percent of those enrolled received premium subsidies and over 70 percent received co-pay and deductible assistance. It's no surprise government subsidies constituted a major portion of Florida Blues' profitability ─ lower premiums and out-of-pocket costs made plans affordable to a greater number of consumers.
3. The "Goldilocks approach" to future regulation. Executives from the firm suggested a number of ways to improve public health exchanges. Cains' executives believe risk pools could be improved by expanding enrollment to healthier and younger members through a mix of attractive prices, consumer outreach, auto-enrollment and potentially stronger tax penalties. Executives also said private insurers could be enticed to rejoin government markets by offering tax credits and cost sharing reductions.
Finally, Cains' recommended the federal and state governments use a "Goldilocks approach" to regulations to revitalize public exchanges. The Goldilocks principle refers to a policy set between two economic extremes. Government regulations that preference regulatory middle ground may help by improving risk protection and member incentives, encouraging more narrow-network offerings and adjusting prices just enough to attract insurers and consumers, according to Cains.
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