Premium Prices Determine Choices Made by Consumers in Insurance Marketplace

Andrew Kitchenman | September 8, 2014 | Health Care
AmeriHealth’s low-cost plans and extensive provider network give it the advantage, according to recent data

Linda Schwimmer, vice president of the New Jersey Health Care Quality Institute.
Its ability to deliver the lowest-priced premiums has put AmeriHealth Inc. in the top slot when it comes to selling plans on the federally run individual health insurance marketplace.

In the first quarter of 2014, AmeriHealth sold 34,427 policies through the marketplace, according to information recently made public by the New Jersey Department of Banking and Insurance.

Horizon Blue Cross Blue Shield of New Jersey issued 21,570 contracts; Health Republic Insurance of New Jersey, 2,523.

“The people that were buying on the marketplace were much more price sensitive, and I think that’s what AmeriHealth’s advantage was in year one,” said Linda Schwimmer, vice president for the New Jersey Health Care Quality Institute, a nonprofit that aims to improve healthcare quality, safety, accountability, and cost-containment.

“They just priced it a little more competitively,” she added.

Outside of the marketplace, Horizon remains the leader, issuing 24,083 contracts, or more than two-thirds, of all 35,176 individual policies.

Horizon’s sizable market share could be explained in part by consumers deciding — correctly or incorrectly — that they did not qualify for federal subsidies when buying insurance on the marketplace. That would have eliminated most or all of the price advantage offered on the exchange, and customers may have turned instead to Horizon, the state’s largest and best-known insurer.

Subsidies in the form of federal income tax credits can significantly lower the price of premiums on the marketplace. They are available to those with household incomes between 100 percent and 400 percent of the poverty line, which currently amounts to between $11,670 and $46,680 for a single person and between $23,850 and $95,400 for a family of four.

The information from DOBI also shows the challenges faced by the newest insurer in the state, Health Republic. The organization is a Consumer Oriented and Operated Plan (CO-OP), a new type of nonprofit insurer launched by the ACA that includes consumers as board members. Its officials had hoped to entice customers by offering a broad, high-quality network of providers throughout the state.

Schwimmer noted that AmeriHealth and Horizon could offer less-expensive plans with more limited networks, while Health Republic depended on the large network built by QualCare, a provider-owned insurer. Smaller, or “narrower” networks frequently include providers that are reimbursed less, which contributes to lower costs and premiums.

Health Republic executives “had the dual challenge of creating market recognition and brand because they were brand new, as well as coming up with a competitive price,” said Schwimmer, a former executive with a Horizon division that develops new insurance programs.

However, AmeriHealth and Horizon both have their own provider networks, which allows them more flexibility to tailor plans and hold down premium prices. One way that AmeriHealth did this is by offering plans that only include a few hospitals. For example, AmeriHealth offers low-premium plans in South Jersey in conjunction with Cooper University Health Care for consumers who use Cooper-affiliated doctors and other providers.

The vast majority of plans sold — more than 80 percent — were in the Exclusive Provider Organization (EPO) category, which limit consumers to in-network providers. This has become the chief method for limiting plan costs and, therefore, premiums.

“I think that shows that narrower networks, tiered networks are probably here to stay because of the price sensitivity,” Schwimmer said. “That’s the why the plans that are getting the lower prices are (accomplishing it) through the plan design, and consumers responded to that.”

Health Republic executives “have to think of different strategies, because the purchasers on the marketplace are all about price at this point,” Schwimmer said.

Since most benefits included in the marketplace plans are mandated by the ACA, price is often the largest factor that distinguishes one from another.

AmeriHealth, a subsidiary of Pennsylvania-based Independence Blue Cross,
has the lowest premiums for the most popular tiers of plans available through the marketplace. The tiers, which are named after various metals (such as gold and silver), are based on the amount that the individual or family pays vs. what the insurance company pays when a bill is submitted..

A bronze plan, for example, covers 60 percent of overall charges, leaving a subscriber to pay 40 percent out of pocket. AmeriHealth’s monthly premium for a hypothetical 27-year-old single person living in Middlesex County would be $230. The cheapest Horizon plan would be $286 per month, while Health Republic’s cheapest plan would be $298 per month.

The marketplace is a central feature of the 2010 Affordable Care Act and overhauled the way that health insurance is sold to individuals and families.

The open-enrollment period for the marketplace began last October and ended in April. Currently, a special enrollment period is open to those whose circumstances have changed, such as those who lost their coverage; had a change in family status; or became citizens or legal residents. The next open-enrollment period begins on November 15.

While some of the central provisions of the ACA, such as the promise that residents can’t be permanently denied benefits for preexisting conditions, were already in place in New Jersey, the law did make significant changes to individual plans. For example, the law barred annual and lifetime limits on benefits.

Further, the ACA prevents insurers in the state from offering the “basic and essential” plans, which have annual limits on benefits. Before these plans were phased out at the end of 2013, they were the most popular individual plans on the market.

The state-provided statistics also detail the tiny impact of the small-business component of the marketplace, known as the Small Business Health Insurance Options Program, or SHOP.

Of the contracts issued in the first quarter, only 22 of 19,231 small-group plans — or slightly over one-tenth of 1 percent — were issued through the SHOP. That’s understandable given that only one plan option was available and that the SHOP website wasn’t operating, forcing businesses to purchase plans through insurance brokers.

“You could only purchase one plan and you had to use paper,” Schwimmer said. She added that the primary incentive for purchasing the SHOP plans was the ability to receive tax credits for businesses that primarily employ low-income workers. But in high-wage New Jersey, few companies qualify.