Some prominent health insurers, including industry giant UnitedHealth Group Inc., are not participating in California’s new state-run health insurance market, possibly limiting the number of choices for millions of consumers.
UnitedHealth, the nation’s largest private insurer, Aetna Inc. and Cigna Corp. are sitting out the first year of Covered California, the state’s insurance exchange and a key testing ground nationally for a massive coverage expansion under the federal healthcare law.
Meanwhile, the biggest insurers in the state — Kaiser Permanente, Anthem Blue Cross and Blue Shield of California — are all expected to participate in the state-run market for individual health coverage.
Covered California, the state agency implementing the federal Affordable Care Act, is announcing the winning bidders and proposed rates Thursday for its insurance exchange, where as many as 5 million residents are expected to shop for coverage next year.
The state has picked a group of health plans for each of 19 regions across California. The insurers will be selling policies with uniform benefits packaged in four broad categories of coverage. For the first time in the individual market, consumers will be able to make easier price comparisons among companies.
But the threat of higher premiums in next year’s revamped market has been a major concern for policymakers who can’t risk alienating too many middle-income, healthier customers who are needed to offset the increased costs of covering sicker, poorer people who have been shut out of the healthcare system for years.
UnitedHealth, Aetna and Cigna are small players now in California’s individual health insurance market. More of their business is focused on large employers, where most Californians receive their health coverage. But the companies signaled a wait-and-see approach on these new government-run marketplaces.
Together, in 2011, those three big insurers had 7% of California’s individual health insurance market, according to Citigroup research. In contrast, Kaiser, Anthem Blue Cross and Blue Shield had nearly 87%, collectively. Anthem Blue Cross is a unit of WellPoint Inc., the nation’s second-largest health insurer.
Peter Lee, executive director of Covered California, declined to comment on specific companies ahead of Thursday’s announcement. But he rejected any criticism that diminished competition could lead to higher premiums and fewer choices.
“There will be plenty of price competition for California consumers,” Lee said in an interview Wednesday. “They will be benefiting from robust competition.”
A spokesman for Minnetonka, Minn.-based UnitedHealth said, “We are simply taking the time to carefully evaluate and better understand how the exchanges will work to ensure we are best prepared to participate meaningfully in their development.”
Joseph Mondy, a spokesman for Bloomfield, Conn.-based Cigna, said the company chose to participate in exchanges in only half of the 10 states where it sells individual health policies. Those states include Arizona, Colorado and Florida. “We will continue to offer individual plans going forward, but we’ve decided not to participate in Covered California in 2014,” Mondy said.
Aetna, the nation’s third-largest health insurer, based in Hartford, Conn., referred questions to Covered California.
Glenn Melnick, a health policy professor at USC, said there could be advantages and disadvantages if the state’s three largest insurers — Kaiser, Anthem Blue Cross and Blue Shield — grab even more business through the exchange. Their increased market power could give them even better bargaining leverage with hospitals and doctors, helping them to drive down healthcare costs.
But Melnick said it remained to be seen whether “the market is competitive enough that those companies will pass along those savings.”
Melnick said UnitedHealth, Aetna and Cigna may be making a mistake by sitting on the sidelines given California’s size and importance in the healthcare overhaul nationwide. “California is going to be a trendsetter,” he said.
Other health policy experts said the lack of these national health plans in the California exchange isn’t a major problem because the exchange probably will announce some new regional competitors.
“We will see a lot of interesting competition by region,” said Micah Weinberg, a senior policy advisor at the Bay Area Council, an employer-backed nonprofit group in San Francisco.
In March, state officials issued a report estimating that, compared with what individual policies cost now, premiums may rise an average of 30% for many middle-income residents who don’t get their insurance through their employers.
At the same time, lower-income consumers will reap the biggest savings and are projected to save as much as 84% off their coverage thanks to federal subsidies.
In California, individuals earning less than about $16,000 will qualify for an expansion of Medi-Cal, the state’s Medicaid program for the poor. Above that threshold, individuals making less than $46,000 and families earning below $94,000 annually will qualify for federal subsidies.
Starting in January, most Americans will be required to have health insurance or face a penalty.