NEW YORK When the state of Mississippi begins offering subsidized health insurance under President Barack Obama's reform law this year, residents will have only one choice - Magnolia Health Plan - a small insurer little known in most of the country.
The Obama administration hoped to attract robust competition in creating the exchanges, and it is counting on millions of Americans without coverage to sign up for these plans in the program's first year.
But the nation's biggest insurers have decided against joining the exchanges on a large scale, professing uncertainty about the roll-out and how much the uninsured would participate. Most are sticking to states where they already sell insurance directly to individuals, leaving at least half a dozen states with only one or two health plans to choose from.
That gives Magnolia, part of Centene Corp, and other small insurers like Molina Healthcare Inc that specialize in serving the poor through state Medicaid programs, a major role in the push to expand U.S. health coverage.
"They are going to be important players in the exchanges that are going to attract a significant low income and modest income population," said Linda Blumberg, a health economist at the Urban Institute, a research firm in Washington D.C.
A similar scenario is playing out in Alaska, Vermont, Rhode Island and Maine, where one small insurer - typically a regional insurer - will have an equal shot at the market against one larger player. These states, and others like Mississippi where competition has traditionally been slim, are a land grab opportunity for these small companies.
The Obama plan had envisioned competition keeping prices low and drawing the uninsured into the exchanges. The federal government aims to get 7 million Americans to sign up for health plans on the exchanges in their first year, and 24 million by 2016, aided by subsidies to purchase coverage. Enrollment begins October 1 for plans that take effect in January.
U.S. Department of Health and Human Services spokesman Brian Cook said the department was working hard to create competitive marketplaces across the country.
But in states like Mississippi where there is no real competition, residents will have a hard time judging whether they are getting a good price. Consumers who prefer a certain doctor or hospital may not have access.
Mississippi, already one of the nation's toughest healthcare markets because of poverty and the relative poor health of its residents, appears to be in the weakest position among all 50 states as the reforms kick in.
It is a piece of the large growth market that Centene, Magnolia's St. Louis-based parent, is eyeing. At a conference last month, Ed Kroll, its senior vice president of finance, estimated annual spending on exchanges in the 19 states where Centene will operate by 2016 will reach $50 billion.
The company, which generated $8.7 billion in revenue last year, had about 2.6 million members at the end of 2012 and focused on the under-insured and uninsured. Centene declined to comment for this story.
Figuring out the right premiums to charge when serving the poor is not an easy business. Centene sued to exit its Medicaid contract in Kentucky last year after higher utilization in the state ate its profits there and then some.
Last year, shares of companies like Molina Healthcare and Centene were trading at a premium because of acquisition interest as companies such as Aetna and WellPoint acquired small players with government business.
Centene's shares have risen 15 percent so far this year, underperforming the 23 percent gain for the Morgan Stanley Healthcare Payor Index.
Molina's shares have risen 35 percent so far this year, outpacing its peers. Based in Long Beach, California, it had about 1.8 million members at the end of 2012 and generated $6 billion in revenue last year.
Molina has applied to sell plans in all nine states where it provides Medicaid services: California, Washington, Utah, New Mexico, Texas, Ohio, Michigan, Wisconsin and Florida. Some of those states, such as California, Ohio and Florida, have competition, while Utah and New Mexico - states with fewer insurers now - are expected to draw just a handful of competitors. Like many states, they have not announced which insurers have applied.
"We are really targeting patients up to about 200 and 250 percent of the federal poverty level," Dr J. Mario Molina, Molina's chief executive, said in an interview. The federal poverty level for a family of four is $23,550 in annual income, and 250 percent of that is $58,875 per year.
The insurer is targeting the parents of children who receive services through the government's Children's Health Insurance Program. Molina also sees an advantage in being able to price low compared to a commercial insurer like WellPoint or Aetna.
"Since we don't offer commercial products, we aren't paying the providers at commercial rates," Molina said. "The products look a lot like the Medicaid plans that we are currently administering. We have worked hard to get providers to contract with us at rates that make products affordable."
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Mike Chaney, Mississippi's commissioner of insurance, had hoped the state's exchange would attract the big companies already active in the region, such as BlueCross BlueShield of Mississippi, UnitedHealth Group Inc and Cigna.
HHS officials are still trying to persuade other insurers to sign on. "So far, they are beating their heads against the wall," Chaney said.
UnitedHealth, which plans to be on a dozen state exchanges and Cigna, which has targeted five, each said that Mississippi was not part of their respective strategies. UnitedHealth did not rule out entering the state at some point in the future.
BCBS of Mississippi, which has 64 percent of the commercial market in that state, declined comment.
A state that faces challenges treating chronic diseases in a rural population, about 20 percent or more than 500,000 Mississippi residents are uninsured. It has had a tough time planning for Obamacare.
Mississippi was the only state to have its application to build an exchange rejected by HHS, which argued the Republican governor did not support it. The governor, Phil Bryant, also refused to expand the state's Medicaid program for the poor under Obama's reform.
HHS took over building the marketplace, one of 33 it will operate nationwide after many states, particularly ones led by Republicans, refused to run them.