The nation's largest private insurer, UnitedHealth Group, is jumping into the public insurance exchange market in 2015 heightening competition in at least 15 states in which it plans to compete for individual business.
UnitedHealth only dipped its toe into the exchanges in 2014, signing an estimated 15,000 members in three states most of which came in Nevada, where UnitedHealth is the dominant carrier. But the popularity of the exchanges, and the more competitive individual market created via the Affordable Care Act, has made this new segment too important for the insurer to ignore.
So why now? For one thing, the second year of the individual exchange is likely to be far more successful than the first the largest, hairiest bugs are worked out, people know what to expect, and last year's hysterical predictions of Armageddon didn't happen. Millions got coverage, and many of them got better and more affordable coverage than they've had access to before. That success will bring people out of the woodwork in 2015.
Second, now that the exchanges are working, many small businesses are likely to consider dumping their group policies in favor of the exchanges, particularly if they have large numbers of employees who would qualify for subsidies. UnitedHealth also wants to take advantage of the two remaining years of federal risk-protections.
So which states?and why? A look at the markets UnitedHealth is reportedly considering gives an interesting glimpse into the likely reasoning and the potential for gains.
In Mississippi and Alabama, UnitedHealth pushes into two of the least-competitive state insurance markets in the country, where the local Blue plans hold near-monopoly status in most areas. Blue Cross and Blue Shield of Mississippi, which has 56 percent of the fully insured commercial market in that state (according to HealthLeaders-InterStudy data as of January 2014), did not participate in the individual exchange for 2014, leaving the new marketplace to Humana and Centene. In Alabama, where the local Blue plan holds 79 percent of the fully insured commercial market, the Blue plan also dominated in the exchange, signing up a projected 69,500 individuals. Humana was the only other player.
It's easy to see UnitedHealth's potential opportunity in Texas and Florida. Both are large, crowded markets with high numbers of uninsured individuals and where, perhaps, a significant number of employers are preparing to dump employees onto the exchanges in 2015. UnitedHealth has 15 percent of the fully insured commercial enrollment in both states, and must defend that share against a crowd of carriers on the exchanges, led by the local Blue plan.
In Georgia, Indiana and Ohio, the competitive dynamic is even more interesting. UnitedHealth takes on its nearest national competitor, WellPoint, which dominates those markets through its local Blue plans. It's also entering hyper-competitive markets in Pennsylvania and Colorado.
But the marketplace holds a number of advantages for UnitedHealth. In many of these states, UnitedHealth will be offering exchange plans under its All Savers brand, which will allow the company to differentiate its own UnitedHealth-branded products in the same markets. To the extent that the All Savers products get criticized for scant networks or other problems, it won't tarnish the insurer's luster among consumers.
The exchanges make it extremely easy for people to switch plans if they're irked by their current plan's too-narrow network, restrictive benefits or price hikes. UnitedHealth, as the largest insurer in the United States, has the market strength in most areas to construct competitive exchange plans rivaling that of the local Blues. It can partner with desirable local health systems for narrow-network plans and has the market power to exclude the most expensive local oncology groups and specialists in an area.
And while the local Blue plans have statewide exchange offerings, UnitedHealth and other national carriers can cherry-pick the urban areas where they can take advantage of greater provider competition.
Having had a year to study the market behavior of exchange buyers, UnitedHealth's strategic entry is going to turn up the heat in the exchanges it enters. With the number of exchange buyers expected to reach 8 million to 9 million in 2015, expect a highly price-sensitive and network-sensitive exchange market.