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Though the complex world of health insurance would seem to have little in common with the restaurant industry, the Affordable Care Act marketplaces’ struggles may be best explained by comparing them to a buffet.
That’s the argument of Margot Sanger-Katz, who writes in a post for The New York Times’ blog The Upshot that like a buffet, the ACA marketplaces “can be a solid business, but it’s hard to get the pricing right.”
The core of the marketplaces’ current problems, which include high-profile insurer exits and rising premiums, is the fact that they underestimated customers’ appetite for medical services, Sanger-Katz writes. Since insurers can no longer deny coverage for pre-existing conditions or charge sicker patients higher premiums, like a buffet they have to set a fixed price and take a guess about consumption.
But that estimate misfired--not unlike a buffet losing money when hungry high-school football players become regulars, eating more food than their admission price covers.
Indeed, there is evidence that public exchange customers tend to be higher utilizers; a Blue Cross Blue Shield Association report noted higher rates of costly chronic conditions among its member plans’ enrollees after the ACA went into effect.
But just as buffets differ--with some offering lower-grade fare and others charging a higher price for better food--not all marketplace plans are created equal, Sanger-Katz notes. Insurers experienced in the managed care space, like Molina Healthcare, for example, have done well on the marketplaces by offering skimpier, Medicaid-style plans.
This analogy, she argues, also explains struggles of national carriers like Aetna and UnitedHealths, both of which will exit many ACA marketplaces starting in 2017 due to deteriorating margins. Because they priced their plans higher and included more robust networks, they may have attracted customers who planned to use pricier providers.