Health Insurance

Humana Obamacare Plans: Competing On Price And Scale

When it comes to the Obamacare exchanges Humana (NYSE: HUM) has adopted a strategy of competing on price and being very selective when it comes to the service areas where they have chosen to offer insurance plans. A look at the plans offered by Humana on the federal exchange will show that their plans are among the cheapest when compared to other insurers in the same county and rating areas.

In almost all cases the Humana Bronze and Silver plans are the cheapest of the plans in a selected area. With price often cited as the number one factor in how consumer choose between Health Insurance offerings, the low premium plans are likely to capture a high share of the potential customers shopping on the exchange.

Budget Gold And Platinum Plans

What is more surprising however is how the higher tier Humana plans compare to plan prices across the exchange. Through the analysis of our Obamacare Exchange Plan Comparisons we have determined that in the 218 counties where Humana has chosen to offer a Gold tiered plan, 168 of the plans have prices that are cheaper than at least one of their competitors Silver tiered plans. In many cases these Gold plans are as much as 40% cheaper than the most expensive Silver plans offered. Similarly in the 182 counties where Humana has elected to offer a Platinum plan the same trend follows, 111 of the counties have a Humana platinum plan with cheaper premiums than competitor Silver plans. By pricing their higher benefit gold and silver plans so that they fall within the range of prices for other Silver plans, these higher tier Humana plans will appear to be offering a better deal. With the higher actuarial value and cost sharing benefits associated with the Gold and Platinum tiers, consumers are in theory getting better value for the premiums paid.
For older consumers concerned about the potentially higher health care costs, these cheap Gold and Platinum plans will stand out on these exchanges. We expect that the result will be a slightly higher than expected enrollment in the Gold and Platinum tiers wehre Humana is offering these plans.

Selective Geographic Offerings

Another aspect of Humana's Exchange offerings is where they've chosen to participate. While most insurers offer plans across entire rating areas or entire states an examination of Humana's plan offerings show that they've focused almost exclusively on the higher population areas within states on the Federal Exchange. In some cases offering plans in only one or two counties per state. In the state of Louisiana for instance the company is only offering plans in Jefferson County, the highest population density county in the state.

State

Total CountiesHumana Counties

Alabama

673

Arizona

152

Louisiana

641

Michigan

833

Mississippi

824

Ohio

884

Utah

292

How The Strategy Might Play Out

It is likely that the pricing strategy the company has taken will be attractive to consumers shopping on the exchange. The company may also see an overrepresentation of consumer opting for gold and platinum plans, especially in the population ineligible for cost sharing subsidies. While it is difficult to determine how profitable the new exchange consumers will initially be, many studies have shown that consumers are reluctant to switch health insurance companies.

The geographic targeting of high population areas may also allow the company to leverage economies of scale, allowing them to keep long term costs down and continue competing on price.

Jonathan Wu

Jonathan is the CEO and Co-Founder of ValuePenguin. He reports on an array of topics, including the financial services industry, healthcare reform, and financial products for consumers. He previously worked in the financial services industry, including at such hedge funds as Avenue Capital Group.

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.