When the consumer marketplaces for insurance go live Oct. 1, don't expect to see much of familiar names like Cigna Corp. or Aetna Inc.
Instead, the insurance companies that are likely to draw attention on the exchanges—which are expected to enroll an estimated 7 million Americans in the first year—are lesser-known, and in many cases will be offering comparatively lower rates.
The biggest health insurers are eschewing many of the exchanges out of concern that many of the individuals who will purchase coverage need it because they have chronic illnesses or other medical conditions that are expensive to treat.
Too many sick patients could mean that the collective inflow of premiums insurers reap from the exchanges won't cover their total costs. And it remains unclear how many young, healthy people will sign up.
Some large insurers, like Cigna, don't sell insurance to individuals in most states, limiting their ability to launch plans on the exchanges since they don't have a provider network in place.
Their expected absence creates an opening for small regional players such as Molina Healthcare Inc., Centene Corp. and Magellan Health Services Inc. to grab market share across multiple states in the rollout of the new federal health law. Others, like Los Angeles-based L.A. Care Health Plan, are focused solely on their home markets.
These companies don't normally offer insurance on the commercial market and will be relying on their experience managing government programs like Medicaid plans. That experience has made them experts in keeping costs low, while maintaining razor-thin margins. They are accustomed to dealing with groups of people who might be shopping for coverage on the exchanges: individuals who've been uninsured for years and could be heavy users of health care.
About 26% of insurers filing to offer health coverage on the individual exchanges are new carriers, according to a McKinsey & Co. analysis of filings in 47 states and Washington, D.C. Some are Medicaid specialists, but others are plans aligned with large providers and health-care co-ops created with federal funds to provide additional competition to private insurers. The remaining 74% are insurers that already offer health coverage to individuals.
In states with a higher number of uninsured residents, there are more newcomers. In California, eight of the 12 insurers are selling commercial insurance to individuals for the first time, according to McKinsey. Four of Oregon's 11 insurance plans are new. Statewide in New York, half of the 16 plans are testing the commercial insurance market for the first time.
In eight states where rate filings were publicly available, McKinsey found that two-thirds of the new entrants were priced below the median premium.
In New York, Fidelis Care, a large Medicaid provider in the state, will offer a 40-year-old, single male living in Manhattan who doesn't smoke a monthly premium of $390.20, according to state filings of midlevel, silver-tier plans.
UnitedHealth Group Inc.'s plan, in contrast, costs $635.60 monthly. Government subsidies, should an individual be eligible, would bring down the out-of-pocket cost. Details on network design haven't yet been released. But the federal government, under the new health law, determines what benefits a plan must provide.
Seven of the 10 plans in New York filed with the state so far are new entrants—including Fidelis. "We stay up at night worrying if we've priced this right," said Rev. Patrick J. Frawley, chief executive at Fidelis.
The newer plans generally offer access to fewer doctors. Molina's plans in Texas will have about 7,000 physicians. The state's largest insurer, Blue Cross and Blue Shield of Texas, offers a network with around 40,000 physicians.
These long-time Medicaid specialists new to offering commercial plans generally enjoy a negotiating advantage with providers. For plans to be sold on the exchanges, they can offer doctors and hospitals more than what they are currently paid on Medicaid. This differs from commercial insurers, which often ask providers for a discount. The rates for the Medicaid insurers are typically lower—even with the same hospital or physician's group, said Dave Axene, a fellow of the Society of Actuaries, an industry group, who's consulted for both commercial and Medicaid insurers.
Insurers on the exchanges will seek to sign up people like Harold Ford Jr., of Boca Raton, Fla., who is in relatively good health. He left his job as a higher-education administrator in May, and his job search has stalled. In shopping for coverage, Mr. Ford said he will be influenced by price, rather than brand name.
"I don't have a brand or insurance loyalty. I'm very open to using different insurers that I may never have heard of before," said Mr. Ford, 41 years old.
Judy Haight, 60, a self-employed craft designer from Madison, Wis., hasn't been insured since 2004. Ms. Haight hopes to find a plan that will cost her under $150 a month after federal subsidies. She doesn't care about whether every hospital or doctor is available to her.
"I'm kind of playing Russian roulette without insurance," said Ms. Haight, who has no serious medical issues.
Among the most recognizable sellers of individual-policy health coverage on the commercial market will be the Blues. Blue Cross and Blue Shield carriers will be present in nearly every state.
Other large insurers are keeping a low profile. Cigna and UnitedHealth will each offer individual exchange plans in fewer than half a dozen states. Aetna, which earlier this year had said it would participate on the individual exchanges in up to 14 states, has since exited from seven.
"Our first-year approach is to be cautious and focus on those markets where we can be successful," an Aetna spokesman said.
Molina is launching plans in nine states, including California, Texas and Florida—the three states, by number, with the most uninsured Americans. By offering plans on the exchanges, Molina expects its annual revenue will increase $2 billion by 2015, up from 2012's $6 billion, said John Molina, chief financial officer.
"We're not trying to be all things to all people," said Mr. Molina, whose plans will target those whose income is $28,725 or less for an individual or $58,875 or less for a family of four—even though the subsidies stretch to households making even more. "We're used to taking care of a very high health-care-consuming population, and I'm not worried if we get more of the same," Mr. Molina said.
Write to Timothy W. Martin at timothy.martin@wsj.com
A version of this article appeared September 19, 2013, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: Big Insurers Skip Health Exchanges.
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