Insurers are still trying to decipher which end of the consumer spectrum will yield greater and sustained profitability. General wisdom says that the medium- and high-income consumers will drive profits in the health insurance marketplace but the reality might be very different! This post puts forth a slightly different spin on the general perception.
Health Status vs Income Levels
Profitability in the post-exchange market is more likely to be linked to health status rather than income levels. This excludes people in and around the poverty index since they are predominantly covered by Medicaid. However, lower-income people who may or may not be healthier than their higher-income equals could constitute the bigger buying section in late 2013 and 2014.
Until now, people in the lower-income group have largely remained underinsured. With the pricing threshold about to be lowered significantly via the health insurance marketplaces, these people could form the bigger buying group. High-income people with a similar health status, whether in terms of tobacco usage or prevalence of diseases, are more likely to be content with sufficient coverage. People with lower incomes have almost similar buying preferences but they have typically not been able to afford the kind of health insurance plans on offer until now.
With the emergence of more affordable products on and off the health insurance marketplace, this demographic is likely to drive profits, accounting for more health plan sales than the traditionally insured segments. On the marketplaces, low-income consumers are likely to be buoyed by subsidies and better actuarial values. Off the marketplace, decreased out-of-pocket expenses and MLR mandates are expected to attract them. The high-income consumer segment is less likely to purchase additional risk reduction while low-income people are expected to seek more supplementary or ancillary health insurance products to better safeguard themselves in the future.
What does this mean for payers?
To avoid being priced out of market, insurers need to offer products that will appeal to the low and medium income groups. In the online marketplace, this translates into creating a portfolio that offers a sizeable number of plan options at the Silver and Gold levels. These metal plans are most likely to attract a higher number of buyers since they offer a reasonably high actuarial value along with limited out-of-pocket expenses.
Gold and Silver level plans are likely to be preferred over Bronze plans as consumers will tend to seek the maximum range of benefits. If subsidies offered through the marketplaces are taken into consideration, Gold and Silver level plans will deliver the dual advantage of heavily-discounted premiums and comprehensive coverage. Bronze level health plans are likely to be a major pricing challenge for insurers. They could struggle to engage serious volumes due to the limited range of benefits on offer.
Off of the exchanges, consumers with incomes disqualifying them from government subsidies could form the biggest buying segment. These health plan shoppers will spend individually or under their employer’s group health insurance. Their preferences are going to be mid-level health plans (on par with Gold & Silver plans) that present a mix of reduced expenses and additional features like better access to specialists and improved consumer service.