If you're giving people a Medicaid-like provider network, do it at Medicaid-like prices

McKinsey & Co. has a report on the state of the ACA marketplace (and the whole individual market) that reinforces one dominant point that was already clear: The marketplace is relentlessly pushing insurers toward a narrow network/managed care model.

At the individual carrier level, results varied as well. While most carriers had negative margins after accounting for the 3Rs, approximately 30% of carriers achieved a positive margin in 2014. At the plan level, patterns emerge around performance differences. In the aggregate, plans based on health maintenance organizations (HMOs) had lower losses than plans based on preferred provider organizations (PPOs), consistent with their ability to enable more tightly managed benefits and care. In both 2015 and 2016, the premium increases for HMO plans were roughly half those of PPO plans, which suggests the initial results carriers experienced in the individual market were more favorable for the HMO plans.

United Healthcare is a major MCO, but its large-market ACA plans don't reflect that

In the ACA marketplace, insurers whose core business has been Medicaid managed care, most notably Centene and Molina, have increasingly underpriced the competition in markets where they compete. These insurers field narrow networks and probably pay little more than Medicaid rates to providers.

United Healthcare, the nation's largest health insurer, has made waves by reporting large losses in the ACA marketplace and threatening to withdraw from it.  Yesterday Richard Mayhew posited that UHC's complaints mainly reflect the extent to which the giant has gotten its clock cleaned in the marketplace -- offering more extensive networks than competitors, charging much higher rates in many key markets, and thereby likely attracting sicker enrollees who place a premium on provider choices.

Mayhew's main source is an Urban Institute analysis of 2016 rates, mainly focused on 81 ACA rating regions that account for 47% of the country's population. Urban's John Holahan and Linda Blumberg found that in 2015, UHC sold plans in 36 of those 81 regions, but offered the cheapest or second-cheapest silver plan in only eight of them. In 2016, UHC is in 48 regions, and offers cheapest or second-cheapest (benchmark) silver in just 15 of them.

In marked contrast, Medicaid managed care providers, led by Centene (fielding the Ambetter brand) and Molina, are playing in 48 of the 81 regions this year and offering cheapest or second-cheapest silver in 44 of them. That up up from 36 out of 44 in 2015.

ACA marketplace: What to watch for in 2016

Larry Levitt tweets core questions for the ACA private market in the coming year:

Key things to watch in health for 2016: 1. Health spending trend. 2. ACA premiums for 2017. 3. Further progress in covering the uninsured.

— Larry Levitt (@larry_levitt) December 31, 2015

That is, will marketplace plans prove affordable to a critical mass of people for whom the nongroup market is the only route to insurance? (The first question has a wider purview.) Regarding the viability of the marketplace, some further questions:

1) Whither narrow networks? For 2017, CMS has tightened the standards for network adequacy, inspiring intense squawking from the insurance industry. More constraint on insurers' ability to exclude expensive providers could put some upward pressure on providers. On the other hand...

Narrow networks: a crooked path to affordable healthcare?

Richard Mayhew has a post suggesting that even a strong public option in the ACA exchanges would generate only "marginal pressure to reduce prices." In a competitive market, it might not undersell all commercial plans, and in a non-competitive market it might be able to field only a very narrow network -- most providers wouldn't opt in. Be that as it may, one claim brought me up short:

Mayhew Insurance is in a competitive market region for the Exchanges.  The lowest priced Silver plans offered by all of the insurers in this region are narrow network HMOs where the providers get paid Medicare rates plus 5% to Medicare plus 10%.  The public option would be just another plan that is in the cluster for the 2nd Silver subsidy point.

In other words, there are insurers on the exchanges who are paying providers no more than a strong public option would pay. In fact it's been suggested to me that the lowest-priced insurers in the marketplace probably pay something closer to Medicaid rates than to Medicare.

This is one of those scratchpad posts, put up as I explore further. If you see any faulty assumptions, please let me know.