Dollars to donut holes, Ambetter undercuts the competition (including UnitedHealthcare)

In late October, when Healthcare.gov first released plan prices for 2016, Jed Graham noted that Ambetter (parent company Centene) had "seized the pole position" in several of the federal exchange's largest markets, offering the cheapest bronze and the two cheapest silver plans in those markets.

Graham further pointed out, "By shrinking the cost of silver through its high-deductible strategy, Centene is lowering the subsidies available for all plans."  A few days later, Richard Mayhew wrote that Ambetter was "spamming" the exchanges by cramming a half-dozen barely-different silver plans into its lineup, all priced below the nearest competitor's cheapest silver. A managed Medicaid provider, Centene is fielding narrow networks in the ACA marketplace and probably paying very low rates to healthcare provides.

Yesterday I took a close look at the way Ambetter has combined sticker-shock silver deductibles (e.g., $6,400 for silver unenhanced by CSR in Chicago) with a relatively broad array of benefits that kick in before the deductible is reached. Swiss cheese coverage is apparently an ingredient in the secret sauce by which the insurer has calculated it can undersell its rivals.

In all Healthcare.gov markets taken together, we're told that on average the unsubsidized price of benchmark silver plans has gone up 7.5% (CMS), and for the cheapest silver plans in each market, 7% (Kaiser).  Not surprisingly, in markets in which Ambetter competes, the base price of the cheapest silver plan has generally gone down -- at the same time that most most of their competitors have felt compelled to raise their prices.

One such competitor, UnitedHealthcare, shocked markets this week by announcing that it was cutting commissions to brokers selling its marketplace plans -- and that it might exit the ACA marketplace in 2017.  UH has lost money in the marketplace to date -- finding, in effect, that it's priced its plans too low. Yet here is Ambetter way underpricing UH -- along with most everyone else -- in some major markets.

Below,  Ambetter's 2016 silver cheapest silver premiums in five cities are compared on one side with the cheapest silver in each market in 2015 and on the other with its nearest silver competitor in 2016 -- and, just for fun, with United Health.  In each city, Ambetter has an array of 5-8 silver plans that are cheaper than the nearest competitor's.

Five Cities Where Ambetter Sells Cheapest and Second-Cheapest Silver

Unsubsidized premiums for a 40-year old

City	Cheapest silver 2015	Cheapest silver '16 (Ambetter)	Nearest 2016 competitor	UnitedHealth 2016
Miami, FL	$274	$258	$274 *	$302
Chicago, IL	$212	$195	$249	$292
Seattle, WA	$235	$224	$234*	$302
Atlanta, GA	$248	$250	$283	$350
Jackson, MI	$293	$278	$309	$315

*Nearest competitor in Miami and Seattle is Molina, another cut-rate insurer - hence the narrower spreads.

For many price-sensitive buyers, Ambetter must appear as the only game in town  -- particularly buyers with incomes under 200% of the Federal Poverty Level, who must buy silver plans if they want to access strong Cost Sharing Reduction (CSR) subsidies. The insurer's lowball prices are good news for the federal treasury, and perhaps for unsubsidized buyers who can live with their benefit structure (i.e., healthy buyers, unlikely to rack up thousands in medical costs). For buyers with incomes under 200% FPL, Ambetter offers low deductible plans at its low price points (generally not in the cheapest plan, but in one just a few dollars more), 

For subsidized buyers, though, not only does Ambetter crowd out the competition, it also forecloses on the "CSR discount" available in some markets -- that is, a significant price spread between the benchmark silver plan, which determines buyers' subsidies, and the cheapest silver plan. Since CSR subsidies are available only with silver plans, that spread can make silver more affordable. A single buyer earning $23,000 will pay about $120 per month for benchmark silver, but in some markets may be able to buy the cheapest silver plan for $100, or $80, or even (rarely) $60. Ambetter, however, regularly prices its cheapest silver within a couple of dollars of its benchmark plan.

Ambetter's play for dominance highlights the possibility that average price hikes in the marketplace, even if weighted by current enrollment, may prove misleading. What matters is the price of plans that marketplace shoppers actually buy.