Why 4 major Arizona insurance carriers are dropping PPO plans in favor of HMO plans

Four major health insurance companies will discontinue preferred-provider plans for tens of thousands of Arizonans next year on the federal marketplace.

Instead, they’ll sell pared-down, health maintenance organization plans that limit the doctors and hospitals that consumers can visit at lower, in-network rates.

Erin Klug, of the Arizona Department of Insurance, said that Aetna, Blue Cross Blue Shield, Cigna and Meritus won’t offer PPO plans on the federal marketplace in Arizona next year. However, Health Net and UnitedHealthcare’s All Savers Insurance have filed paperwork to sell PPO plans in 2016, pending federal approval, Klug said.

HMOs dominated Arizona’s insurance market in the 1990s, before consumer backlash over these more restrictive plans fueled the popularity of PPO plans. PPOs gave consumers a broader choice of doctors, hospitals and specialists but also coincided with an era of inflated medical spending.

As Arizona insurers seek to trim losses on Affordable Care Act marketplace plans but still keep plans affordable for consumers, they increasingly are dropping PPOs in favor of HMOs that are often paired with smaller networks of doctors and hospitals.

Blue Cross Blue Shield of Arizona already has mailed out notices to the first wave of about 37,000 PPO customers explaining that they’ll be assigned to new HMO plans beginning next year. Blue Cross Blue Shield officials said they tried to match their customers to plans that were a good fit with price, doctors and hospitals. Consumers will have the option to shop for other plans during the three-month open enrollment, which begins next month.

“We need to make changes in the individual market that reflects what our consumers demand,” said Jeff Stelnik, Blue Cross Blue Shield of Arizona’s senior vice president of strategy, sales and marketing.

RELATED: Providing businesses with affordable health-care plans

Health insurers are operating in a different market than the pre-2014 days. Then, they could protect their profits by denying or limiting coverage for those with chronic health conditions. The federal health law forbids insurers from denying coverage based on an individual’s health. Insurers say that has created insurance pools with some consumers who heavily use medical care, whether a specialist, a hospital or expensive prescription drugs.

Many companies that sold health insurance plans through the federal marketplace in Arizona reported substantial financial losses in 2014, according to filings with the National Association of Insurance Commissioners.

Blue Cross Blue Shield of Arizona reported an underwriting loss of more than $33 million. The insurer’s losses on individual plans — those sold on or off the federal marketplace — reached about $90 million in 2014, company officials said. Those losses were offset by plans sold to businesses, federal employees and seniors. Even though the insurer had an underwriting loss, it made a profit of $4 million due to returns on investments.

Other Arizona insurers had larger losses in 2014. Health Net reported a net loss of nearly $79 million in Arizona, Cigna lost $16.9 million and the startup, non-profit health insurance cooperative Meritus lost more than $16 million, according to the NAIC report. The report did not provide separate financial figures for different areas of an insurer’s business, such as individual marketplace plans or larger group plans sold to businesses.

The federal health law has three programs — called reinsurance, risk adjustment and risk corridor — designed to help stabilize premiums for consumers and discourage insurers from dropping out of the market.

Some health insurers will get lucrative payments from these programs designed to counter the extra cost from taking on high-risk patients.

The federal Centers for Medicare and Medicaid Services announced in June it would pay $7.9 billion to 437 insurers nationwide under the reinsurance program, which collects funds from all insurers and distributes money to insurers to offset the medical costs of patients whose claims exceed $45,000. Insurers that signed up more high-risk patients in 2014 expected to get tens of millions of dollars in reinsurance payments, CMS records show.