Well-known insurers could lose competitive edge in exchanges

The big-name players in the private insurance industry shouldn't let their guards down as they enter the homestretch before the health insurance exchanges begin open enrollment in October.

Sure, name recognition for companies like Aetna, Cigna, UnitedHealth and WellPoint could help boost their sales. But among the many unique characteristics of this new consumer group shopping for coverage through online marketplaces is that they haven't had insurance for a long time, if ever. In other words, mainstream insurers won't be able to easily sway some people by name alone. They don't care if you're the industry behemoth or a newcomer.

That's good news for small companies, especially those specializing in Medicaid plans. Although they'll be entering new territory by selling policies on the exchanges, Medicaid-based insurers have many advantages that will let them successfully compete with big-name commercial insurers.

"There has never been a better time to be a Medicaid health plan with the opportunities in front of us," Lisa Rubino, president of Molina Healthcare of California, told AIS Health, including "the exchanges and the expansion of Medicaid."

Several Medicaid insurers participating in exchanges say they'll focus on uninsured individuals with low incomes plus the parents of children who already have Medicaid coverage. "They're already tapped into those family units, so this is a way to bring the whole family together. [Medicaid carriers] really do see exchanges as an opportunity," said Jeremy Palmer, a principal and consulting actuary with Milliman, AIS Health noted.

Massachusetts-based Network Health is one such Medicaid insurer forging ahead with plans to compete and vie for consumers on the exchanges despite--or perhaps because of--its smaller size.

Network Health and other Medicaid-based insurers will have some key competitive advantages like experience with a sicker population, making them better prepared for consumers shopping on exchanges who likely will have multiple chronic conditions. They also will have brand recognition among the low-income population. "They feel like their brand among the lower-income population is very strong," Palmer said.

Plus, Medicaid insurers have leaner margins since they're used to operating with lower profit margins. "We are very frugal in how we spend the government's money," Rubino said. And they have existing relationships with essential community providers as required by the reform law. "We didn't have to go out and forge new relationships like many commercial carriers," she said, adding that Molina maintains a culturally sensitive staff.

With the opening of exchanges this fall, the healthcare industry is ushering in an entirely new way of doing business. No longer will insurers operate primarily within the business-to-business market, where they make deals with big employers to obtain several hundred new members, for example. The online marketplaces officially introduce the business-to-consumer market, forcing insurers to reach out directly to individual people to obtain their business. The very newness of this market puts every company on even footing.

Who will become the new big players in this fresh market? Only time will tell. But I would venture to guess if a company can work hard, market to the right audience and offer competitive prices, it's anyone's ballgame. - Dina (@HealthPayer)

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