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The Narrow Sea: How Obamacare Is Affecting Insurance In Texas

After a year of losses, insurance companies are pulling back on their public exchange offerings. This year, consumers are seeing fewer options on the federal marketplace. Could this one day impact employer plans, too?

In November, a curious message appeared on UT Southwestern Medical Center’s website: “Please note that UT Southwestern University Hospitals and Clinics will not be contracted with any of the insurance plans currently available through the Affordable Care Act Health Insurance marketplace during the 2016 calendar year.”

Locally, it was one of the most visible signs of the impact from insurance companies shrinking their Obamacare exchange networks to clot the bleeding of hundreds of millions of dollars in losses. Blue Cross Blue Shield of Texas, the state’s largest insurer, had offered broad networks in nearly every corner of the state in the first two enrollment periods under President Barack Obama’s healthcare reform law. No other Texas insurer deployed that amount of resources to the exchanges.

The problem: BCBSTX wound up paying out $400 million more in claims than it brought in via premiums in 2014, an amount that just about doubled the national average of what its competitors lost. Under the Affordable Care Act, people were getting health insurance in the country’s most dismally insured state—and they took advantage of it. And they took such advantage of those shiny new insurance cards that Blue Cross and other big-time payers used it as proof that they couldn’t adequately predict what was coming. This new population had chronic health problems like diabetes and hypertension. They rarely, if ever, had seen a doctor in the past, and so their continuum of care stretched much further than that of a standard patient who got annual checkups.

In the midst of all this, the insurance companies maintain there was no data to analyze, no way to accurately quantify demand to price the plans accordingly. This led to unsustainable losses, Blue Cross Blue Shield of Texas and the other payers argued. So first came the exchange plan rate hikes; Aetna’s HMO went up about 15 percent, Cigna’s by between 14 and 17 percent, BCBSTX’s by about 19 percent, Scott & White’s health plan jumped by 32 to 34 percent. “I think that we certainly misjudged the risk,” says Dr. Dan McCoy, BCBSTX’s chief medical officer. “There was no historical data to anticipate what the risk of that population would be.”

Then came the purge of the PPOs. Those broad networks that Blue Cross offered are known as PPO (Preferred Provider Organization) plans: If you receive health insurance through your employer, you’re likely familiar with them. In return for higher premiums, the patient gets to choose from a wider network of doctors from whom to receive care. The alternative is an HMO (Health Maintenance Organization), in which a patient’s primary care physician farms out specialty services to a narrower network of specialists as determined by the insurer. These are usually cheaper and easier for the insurance companies to gauge risk in how they build their networks and establish their rates. PPOs all but disappeared from the marketplace during the third enrollment period, leaving out some major providers in markets all across the country.

Some providers, including UT Southwestern, say the federal marketplace rates being offered by insurers aren’t enough to make up for the costs of providing care. So as of early December, UTSW’s hospitals, affiliated physicians, and outpatient clinics had not reached a contract agreement to be a part of a plan offered on the exchanges. Dr. Bruce Meyer, UT Southwestern’s executive vice president for Health System Affairs, says the academic medical center’s two hospitals were offered rates that were less than what Medicaid pays. (The Texas Medical Association says that’s generally less than half of the average cost to provide a service.) McCoy said he was unfamiliar with the specifics of the contract negotiations.

“The state requires us to be a viable financial enterprise,” Meyer says. “We have to show that we can maintain financial viability. Some of the plans we’ve been offered simply don’t do that.”

And this is how the plans on the federal marketplace are developing: narrower networks, fewer options, higher rates. The Robert Wood Johnson Foundation found that of the 131 carriers that offered PPO silver plans in 2015, just one-third remained unchanged—the rest were either diminished or done away with. There was outrage in Houston when cancer patients learned that the world-renowned M.D. Anderson Cancer Center was no longer included in-network, forcing the patients to choose another provider or pay more out-of-pocket to continue their care. And although the Affordable Care Act puts a cap on annual out-of-pocket costs for in-network providers, there is no such safeguard against charges for providers that operate outside the plan’s network.

“The first thing I would say is that I’m sorry”  says BCBSTX’s McCoy on dropping PPO plans. “It was a very difficult decision for us because we understood that removing the PPO from the marketplace’s individual plans would require our members to make a difficult decision about what they would purchase going forward and whether they would make some changes to their healthcare access points.”

These changes have helped birth some nimble competition on the exchanges. New York-based startup Oscar recently staked its claim in the Dallas-Fort Worth market, slapping its advertisements on DART buses—with slogans like “health insurance should fix an arm and a leg, not cost one”—and announcing its arrival in radio ads. The company is now valued at $1.45 billion. And it was started out of frustration. Its founders were confused by how to sign up for health insurance, what they received in their plan, how much they had to pay, and where they could get care. So, they aimed to simplify it and move it to a completely digital system. Included in the plans are easy access to personal health records through an online portal. There’s free telemedicine for bumps and bruises and coughs and fevers. Many generic medications are free of charge. And there is a concentrated, vetted health partner in each market for consumers to see primary care physicians and specialists. In North Texas, Baylor Scott & White Health and Tenet Healthcare Corp. are the providers for Oscar plan owners.

“It’s not a gatekeeper model; we don’t require referrals to see a specialist,” says Vijay Kedar, general manager for Oscar’s Texas region. “We want our members to have access to all the high quality physicians in the network. The goal is not to create an ultra narrow network just for the sake of it, or cost saving; we’ve created a network that we believe substantially covers the market.”

About that coverage: It consists of more than 20 hospitals and about 2,000 physicians spread across North Texas, priced competitively with Blue Cross Blue Shield’s Blue Advantage plan. And, because of its online and digital-native system, Oscar is able to deploy the sort of value-based initiatives that keep an eye on patients and help keep them out of expensive emergency rooms. Nurses and physicians monitor the occurrence of doctor’s visits related to the patient’s ailment. Co-founder Mario Schlosser recalls how an Oscar nurse discovered that a diabetic member stopped seeing his endocrinologist. When the nurse reached out, the man said he simply didn’t like his doctor and had stopped going. Schlosser says the nurse found the patient one he liked, and got him back on his regimen. 

“If we are closer to the member, if we have a better pulse of what the member is going through, then there are two things that enables us to do,” Schlosser says. “Obviously, we can make you happy as a member. But the second thing is to help you with your health.”

I ask McCoy of BTBSTX about the future of private health insurance, whether bulbous PPO plans will ever exist outside of group plans. He talks about value-based care, similar to what Schlosser and his startup aim to provide. Cut down on chronic diseases and make sure the patient goes to their doctor, fills their prescription, and actually takes the medicine, and save a whole lot of money in the long run. Do this well to manage your costs.

Besides, narrow networks are something we’re all going to have to start dealing with. Companies have begun requesting that Blue Cross shrink its providers—a tradeoff for shrunken premiums, McCoy says. Sure, most employers still want the “big broad network,” as McCoy calls it. But as more businesses look to contain their healthcare costs, the trends we’re seeing play out on the exchanges may eventually begin to influence group plans, too. Especially if the insurance plans manage to contain costs there.

McCoy frequently says a variation of the following phrase: “We are in the very early days of a long journey.” He’s right. And we should start accepting that the path—for all of us—will likely only become narrower.

This column originally appears in the January/February issue of D CEO