Special Series: How Medicaid Players Have Mastered ACA Challenges
With Aetna, UnitedHealth Group, and Humana exiting the public health exchanges, and many other insurers reporting significant losses on their ACA line of business, it seems that no payer has yet to crack the ACA code. But the truth is some Medicaid managed care players are having greater success with their ACA line of business. CareSource, Neighborhood Health Plan of Rhode Island, Molina Healthcare, and Centene, for example, are reporting more positive gains with their ACA populations.
Here, Oliver Wyman’s Parie Garg details the characteristics that differentiate Medicaid Managed Care Organizations (MCOs) on the exchange and explains why they are seeing success. Payers that are struggling to manage their own ACA populations can learn from these Medicaid players.
Six reasons why Medicaid MCOs are killing it on the exchange:
1. Relentless focus on Medical Loss Ratio (MLR)
Medicaid plans already pay very close attention to their MLRs because their margins tend to be so low, and they are masters at managing their MLRs to squeeze every possible penny out of their premium dollar. In fact, when CMS announced an 85 percent floor for Managed Medicaid, no one flinched – any Medicaid plan worth its salt is already at that point. (How many commercial group plans can say the same?) (Read related post: "Special Series: Secret to Success on Public Exchanges: Forget One-Size-Fits-All Care Management”)
2. Familiarity with direct-to-consumer interactions and marketing
At its core, Medicaid is a direct-to-consumer business; the state is involved, but indirectly. Plans still need to market to individuals and get them on board. Thus, extending to the consumer-centric exchange was less of a leap.
3. Experience with diverse populations
The exchange population is very diverse, as is Medicaid. Medicaid covers healthy adults, children, pregnant moms, disabled, and mentally ill. The population needs are vastly different based on sub-segment, and, thus, very similar to the cohort diversity found in the exchange.
4. High-touch care models for those that need them
Medicaid MCOs are very good at sub-segmenting their populations, assessing care needs and assigning resources. Similar logic applies to the exchange population; it is not a one-size-fits-all approach. (Read related post: "Special Series: Secret to Success on Public Exchanges: Forget One-Size-Fits-All Care Management”)
5. Narrower network
The Medicaid plans don’t have as many of the premier providers in their network, which makes their plans less appealing to higher-income individuals with complex health issues and higher healthcare utilization. Thus, narrow networks actually work in their favor, as the higher-income individuals with complex health needs – some of whom may have existing relationships with sub-specialists at a high-cost Academic Medical Center – are not drawn to their plans. In contrast, plans that included the premier providers and didn’t have the low-cost position became a magnet for adverse risk selection – meaning they were both higher priced and suffered far greater losses than their traditionally Medicaid-focused peers
6. Lower unit-cost contracts
Finally, Medicaid-focused plans have been able to leverage their lower unit-cost contracts to their advantage. Medicaid-focused plans tend to have a lower unit-cost for medical costs and, therefore, can operate relatively cheaply. So when it came time for these plans to negotiate provider contracts for the exchanges, they were able to use lower unit-cost contracts, with their Medicaid rates (roughly half of Commercial rates) as the anchor point. Even when they conceded to pay 20 percent more than their Medicaid rate, they were still just 40 percent below Commercial rates, and yet were perceived as “nice guys” for the concession they offered providers.
In comparison, the Commercial payers went into those negotiations with their standard Commercial rates (double Medicaid), asked for concessions, were viewed as bullies, and walked away with perhaps a 20 percent discount off of their commercial rate.
As a result, Medicaid plans ended up paying about 25 percent less unit-cost than traditionally Commercial plans. This allowed Medicaid-focused plans to offer lower prices in several markets. And this, in turn, caused their offerings to be more attractive to the low-income, subsidized population – an attractive segment because it seems to be a “healthy” group of customers.
One big reason why payers should take note:
With the recent spate of health plans opting to exit the exchange, the Medicaid-focused insurers – payers that are able to successfully leverage their experience to drive success within an exchange population – are rare a bright spot. Perhaps it is time insurers sat up and took notice of the success that a deeper understanding of this population will drive in an increasingly consumer-centric world. The above characteristics are factors that need to be explored to gain more stable footing in the exchanges and ensure a level playing field when competing with traditionally Medicaid plans.