Here's the secret to winning at Obamacare if you're an insurer: Get the poorest people to buy your plans.
As Aetna, UnitedHealthcare and other large insurers flee the Obamacare marketplaces, leading to widespread concerns about a lack of options for consumers during the upcoming signup season, the insurers left behind share something in common.
They do a much better job of selling to poor people who earn too much to qualify for Medicaid but little enough that they can collect the heftiest federal subsidies to make coverage more affordable.
Signups are by far the highest among people earning between 100 and 150 percent of the federal poverty level of $11,770 last year and $24,250 for a family of four. Seventy-six percent of eligible enrollees within the income range have signed up, according to an analysis by Avalere Health.
But the signup rate drops significantly at higher income levels, where people are eligible for fewer subsidies the more they earn. Just 41 percent of eligible people earning between 151 and 200 percent have signed up. The enrollment rate drops to 16 percent for earners between 300 and 400 percent of the poverty level, just below the line where they phase out of subsidies altogether.
So the key to getting a sustainable mix of healthy and sick enrollees is to target that lower-income range, experts say. And that's the space that smaller insurers and some of the Blue Cross Blue Shield-licensed plans were operating in before the Affordable Care Act's marketplaces opened.
Those insurers, which are expanding into more marketplaces even as the larger insurers exit, primarily covered Medicaid enrollees, people who are unemployed or earn very little. They're already tied into the Medicaid provider network, so it's been much easier for them to sell plans to the lowest-income marketplace shoppers.
"Centene and Molina really are in that niche part of the business and that's the one part where you've got great signups," said insurance industry consultant Bob Laszewski. "United and Aetna are in the rest of the market, and they're getting slaughtered."
St. Louis-based insurer Centene has said it's achieving margins "at the higher end" of the company's targeted range for its 683,000 marketplace customers. CEO Michael Neidorff has said UnitedHealthcare, which is pulling out of most marketplaces next year, caters to a "high-end client" compared to the typical Centene consumer.
It's similar for Molina Healthcare, based in Long Beach, Calif. The company more than doubled its profit last year, partially through dramatically expanding its Medicaid base through the Affordable Care Act's expansion of the program. Molina also sold marketplace plans in nine states to about 600,000 customers, comprising about 15 percent of its total business.
"Plans with a deep knowledge of Medicaid know the population and they can anticipate the needs of those consumers," said Avalere President Dan Mendelson.
Since Molina mainly covered Medicaid patients, the company already had relationships with doctors and hospitals that serve low-income patients, Molina CEO J. Mario Molina told the Washington Examiner.
Molina said about 75 percent of providers who the company's Medicaid plans work with agreed to offer care to marketplace customers as well.
"We wanted to be able to offer continuity of care to our members," Molina said. "This is an expansion of our Medicaid line of business."
The Affordable Care Act aims to get the uninsured enrolled partially by subsidizing those earning between 100 and 400 percent of the federal poverty level. Yet the strategy has worked well only among those eligible for major subsidies, who don't have to pay the full cost of their plan.
About 11 million Americans have bought marketplace plans, but the new enrollees are heavily skewed toward the lower-income end of the spectrum, who can get subsidies to cover almost the full cost of their premium plus additional subsidies to help with the cost-sharing components.
Of all 2015 marketplace enrollees, 40 percent earned between 101 and 150 percent of the poverty level, according to data from the Department of Health and Human Services compiled by Avalere. Just 8 percent of the enrollees earned between 301 and 400 percent.
Medicaid managed-care companies were also able to appeal to lower-income shoppers by offering plans with narrower provider networks but lower monthly premiums. Those on severely limited monthly income tend to rank cost over other components of a health plan, insurance experts say.
"You go to these people and say here's the network and they say yeah, that's where I've been going all my life," Laszewski said. "Take a narrow network and try going to Beverly Hills. Try selling that."
The story is a little different for Blue Cross Blue Shield plans, which operate independently but are licensed by the national association. But they, too, have strong local ties to doctors and hospitals, which have generally enabled them to offer shoppers lower-cost plans with the providers they were already seeing.
"There is a long history of these Blues plans having a strong relationship with the provider community," said industry consultant Kip Piper.
When the marketplace launched three years ago, nearly every major insurer participated in at least some states. But experts agree that pricing their products was difficult, as they had little to no data on the new customers who would be buying the plans.
Now that extra, loss-cushioning payments called reinsurance are running out, the largest insurers are withdrawing from the marketplaces where enrollment is set to begin Nov. 1, saying their losses are too great. The news has put the Obama administration on the defensive, as the exchanges are a big part of how the healthcare law was supposed to expand coverage.
Joe Marinucci, a senior director with S&P Global's financial services rating team, said that unless insurers had already been operating in the Medicaid managed care sector, it was easy for companies to get "burned" in the marketplaces.
"Our view as a rating agency is this is the most risky market you can do business in," he said.