Private Payers Face More Medicaid Competition on ACA Marketplaces

Private payers are facing steeper competition from Medicaid health plans on the Affordable Care Act marketplaces, a Robert Wood Johnson Foundation study found.

Researchers surveyed six state—Arkansas, California, Florida, New York, Ohio, and Washington—to assess the competitive landscape for each Affordable Care Act state health insurance marketplace. In the 127 marketplace rating regions, almost two-thirds of them (80 plans) had a Medicaid payer on the marketplace.

Over half of those plans (54 plans) offered the lowest-cost silver plan in their marketplace. The researchers interviewed stakeholders in these six states to gain their perspectives on marketplace dynamics due to the presence of Medicaid payers and how these plans compare to private payer marketplace plans.

The study shed some light on why these Medicaid payers are gaining traction in Affordable Care Act marketplaces.

First, payers who managed Medicaid payers on federal and state health insurance marketplaces boasted a strong business model. They tended to enter the market with smaller networks that were more affordable.

Medicaid payers were also more effective at keeping administrative costs low. Cutting out actuarial modeling and alternative plan designs were largely responsible for the lower spending.

Furthermore, since Medicaid plans tended to have smaller networks, these payers naturally had to deal with less paperwork than plans with broad networks. However, this may not be ideal for patients who would like more provider options.

Medicaid payers also invested in brokers to boost enrollment, which proved successful. Brokers have started receiving equal compensation from Medicaid payer customers as they do from private payer customers in some states.

While private payers are accustomed to handling a broad range of consumer needs, Medicaid payers were very familiar with the needs of low-income communities. This proved to be an asset on the Affordable Care Act marketplaces that may experience churn between the state’s Medicaid and marketplace populations.

Because of the utilization review requirements for Medicaid plans, Medicaid payers also tended to approach utilization review more effectively and more rigorously, some interviewees indicated. Specifically when it came to prior authorization and STEP therapies, Medicaid payers could impose far more comprehensive and demanding expectations.

As a result, utilization review was one area in which some private payers started modeling themselves after Medicaid payer strategies.

Imitation went both ways, however. The second major reason why Medicaid payers were gaining traction in Affordable Care Act marketplaces was that Medicaid payers have adapted and advanced their Affordable Care Act offerings to imitate private payer standards. This left very little distinction between Medicaid payer Affordable Care Act plans and private payer plans on the marketplace.

While Medicaid payers often started with smaller networks, they expanded these networks over time to match private payer plans. Benefit designs in Medicaid payer marketplace plans could also be richer than in private payer plans because they tended to offer social services and may cover more services before the deductible. Reimbursement was likewise becoming more similar between Medicaid and private payers on the marketplace.

Even Medicaid and private payer marketplace advertising began to mirror each other. Most plans chose to focus on the price and brand name in their marketing. Although the channels that private and Medicaid payers used to advertise may be different, the marketing spend tended to be about the same, an interviewee noted.

Lastly, contrary to expectations, Medicaid plans were able to support Affordable Care Act marketplace consumers, despite smaller networks and other elements that experts expected to handicap these plans.

Medicaid payers did not receive an overwhelming amount of negative commentary from consumers—no more so than health plans usually do, the interviewees said.

Providers, on the other hand, are not fully satisfied with Medicaid plan rates. Medicaid payers expected to land the same rates with marketplace providers that they would for a Medicaid health plan, whereas providers viewed any marketplace plan as essentially commercial and expected commercial-level reimbursement.

While their marketplace plans have gained ground, Medicaid payers did edge private payers out of the Affordable Care Act marketplaces and were not in immediate danger of doing so, the researchers concluded.

A separate Robert Wood Johnson Foundation report found that, among private payers, Blue Cross Blue Shield plans hold an overwhelming majority of the market share on the Affordable Care Act federal and state health insurance marketplaces at 47 percent in 2018. Meanwhile, Medicaid payers took up 27 percent of Affordable Care Act marketplace enrollment that year and other national and regional insurers slid down to 14 percent of the market share.

As states filed on the Affordable Care Act marketplaces for plan year 2021, some states saw a boom in payer presence. In the state of Washington, for example, 15 payers filed 183 health plans on the individual health insurance marketplace alone. Some state health insurance marketplaces received an additional boost in enrollment this year due to special enrollment periods.