Some big health plans must think exchanges will succeed

More aggressive drafts of the Affordable Care Act (ACA) included a public option that would have set up a government run health plan to compete with private insurers. That got shot down in an effort to broaden the base of support for the law. Although I’m not a fan of government-run businesses, I do think it would have been an interesting experiment to see whether private plans would have sharpened their game in the face of new competition, especially since many areas of the country current lack robust competition among commercial health plans.

While the public option never made it, the ACA’s insurance marketplaces are on their way in just a few days. Exchanges promote competition by giving buyers the chance to compare health plans on an apples-to-apples basis. Price becomes a more important decision factor in efficient marketplaces. Even if the exchanges get off to a rocky start they are already sending shudders through the ranks of the established brand name health plans. You can tell from the Wall Street Journal article (Health Insurers Scramble to Keep Healthy Customers), which depicts at least some plans resorting to aggressive or even deceptive practices to keep customers from defecting to exchanges.

The plans are scared that current members will go to exchanges for lower premiums and possible government subsidies. Humana sent a letter that the Kentucky Department of Insurance considered misleading. The company was trying to get its members to renew early for 2014 by threatening to switch them to a pricier policy if they didn’t. Aetna has also run into trouble.

This behavior reminds me of what I see with consumer products in other markets that have become more competitive, and that pleases me. It reminds me of AT&T getting aggressive on renewals and upgrades when Verizon was about to get the iPhone. Or like what happened when the long distance business was deregulated and MCI offered an innovative Friends & Family plan. Or when various fast food chains offered value menus. In these cases consumers won out once they learned to navigate the new environment, and established companies had to sharpen their game to continue to compete.

Health insurance has a long, long way to go to approach the competitiveness and consumer focus of other industries. Due to various constraints it may never get there. And yet the introduction of exchanges looks like it may turn out to be a bigger step in that direction than I had expected.


September 23, 2013

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