In­sur­ers strug­gle to cal­cu­late rates as en­roll­ment nears end

Modern Healthcare - - NEWS - By Dar­ius Tahir Dar­ius Tahir is a free­lance writer based in Wash­ing­ton.

When open en­roll­ment in the in­sur­ance ex­changes closes March 31 for most Amer­i­cans, in­sur­ers will be scram­bling to eval­u­ate their new mem­ber­ship, as­sess the Obama ad­min­is­tra­tion’s lat­est rules, guess at their com­peti­tors’ strate­gies—and de­cide on ex­change plan pre­mi­ums and their choice of mar­kets for 2015.

In some states, in­sur­ers must file their pro­posed 2015 rates as soon as May 1, while in the 36 states re­ly­ing on the federal Health­Care.gov ex­change they have un­til June 27. That al­ready-tight timetable was made even tighter last week when the ad­min­is­tra­tion ex­tended open en­roll­ment for con­sumers who at­test that they tried to but could not en­roll be­cause of a range of fac­tors be­yond their con­trol.

In­sur­ers’ short turn­around time, cou­pled with reg­u­la­tory un­cer­tain­ties, has led some in­dus­try of­fi­cials and out­side ex­perts to pre­dict that dou­ble-digit rate hikes could be in the works. That would be bad news for con­sumers, the ad­min­is­tra­tion and Democrats run­ning for elec­tion in Novem­ber. The fear is that if pre­mi­ums rise sig­nif­i­cantly, fewer healthy but unin­sured Amer­i­cans will sign up in 2015, leading to more rate hikes. Still, many ob­servers say the ex­change mar­ket would sur­vive rate in­creases be­cause the law’s re-in­sur­ance and riskad­just­ment mech­a­nisms pro­tect plans with high­erthan-ex­pected costs.

“There will un­doubt­edly be re­mark­able price in­creases,” Wel­lPoint CEO Joseph Swedish said. He added that the prospect of dou­ble-digit hikes “ap­pears as if it’s likely,” but he was un­cer­tain about spe­cific num­bers. His com­pany— the big­gest commercial in­surer in the ex­changes, with 500,000 mem­bers as of the end of Jan­uary—will study the de­mo­graph­ics and med­i­cal uti­liza­tion of its new mem­bers to fig­ure that out.

Swedish’s un­cer­tainty is shared by many ob­servers, though not all pre­dict

“There will un­doubt­edly be re­mark­able price in­creases.” —Joseph Swedish CEO Wel­lPoint

such big in­creases. Those warn­ings are tem­pered by rel­a­tively mod­er­ate med­i­cal cost growth, in­sur­ers’ up­beat com­ments about en­roll­ment and Pres­i­dent Barack Obama’s an­nounce­ment Thurs­day that the ad­min­is­tra­tion had met the goal of 6 mil­lion pri­vate-plan sign-ups un­der the Af­ford­able Care Act.

Swedish said the de­mo­graphic mix of his com­pany’s new en­rollees “has turned out how we ex­pected.” An­other Wel­lPoint ex­ec­u­tive told in­vestors ear­lier this month that he was “very op­ti­mistic as to where we are” on the ex­changes. The com­pany also has upped its es­ti­mate of how many new cus­tomers have made their first pre­mium pay­ments on time, from 80% to 90% in re­cent weeks.

Given such com­ments, some an­a­lysts ex­pressed sur­prise about pre­dicted dou­ble-digit hikes. They say Wel­lPoint and other in­sur­ers may sim­ply be play­ing it safe by plan­ning big­ger in­creases and are pre­par­ing the pub­lic for the likely rate shock.

Still, there’s no ques­tion in­sur­ers are ner­vous about the ex­ten­sion of the ope­nen­roll­ment pe­riod. They fear people might wait un­til they need med­i­cal care to sign up. On the other hand, the ex­ten­sion might ben­e­fit in­sur­ers be­cause late en­rollees likely will be younger people who sim­ply pro­cras­ti­nated, said Ceci Con­nolly, the leader of Price­wa­ter­house­Coop­ers’ Health Re­search In­sti­tute.

The risk-pool com­po­si­tion is a big ques­tion mark, though that likely will vary in each state’s mar­ket. And the rate im­pact will de­pend on what model each in­surer used to cal­cu­late 2014 pre­mi­ums. At a March 11 in­vestor event, Hu­mana CEO Bruce Broussard said “uti­liza­tion is not out of line with what we ex­pected.” Aetna’s CEO, Mark Ber­tolini, said at a March 11 event that “our view is that the de­mo­graph­ics are skew­ing older. We don’t know if that’s sicker.”

Ber­tolini said he’s wary about new CMS rules, in­clud­ing a pro­posal to closely ex­am­ine the ad­e­quacy of plans’ provider net­works. If his com­pany still has a lot of un­cer­tainty by the end of April, it will have to pro­pose higher 2015 rates to pro­tect it­self, he warned.

Con­nolly said in­sur­ers likely were just be­low their pre­ferred per­cent­age of younger sub­scribers. But, she added, new cus­tomers who have signed up for in­di­vid­ual-mar­ket plans out­side the ex­changes are a wild card that could bal­ance that out, since some think health­ier and wealth­ier people may be en­rolling in plans out­side the ex­changes.

An­other con­sid­er­a­tion for in­sur­ers is the three-year phase-out of re-in­sur­ance and risk-cor­ri­dor pro­tec­tions es­tab­lished un­der the ACA, said Hans Leida, a con­sult­ing ac­tu­ary with Mil­li­man. The phase-out of re-in­sur­ance would con­trib­ute about 6% to 12% in rate in­creases alone, spread out over the next few years. The risk-cor­ri­dor pro­gram built in some cer­tainty for in­sur­ers on the ex­changes by lim­it­ing both po­ten­tial gains and losses.

But the ad­min­is­tra­tion’s reg­u­la­tory twists and turns, com­bined with pres­sure on Oba­macare fund­ing from con­gres­sional Repub­li­cans, could re­duce in­sur­ers’ sup­port from those pro­tec­tions. “I think in­sur­ers are go­ing to be less cer­tain that those safety nets will be there to catch them if they fall,” Leida said. “That may re­sult in in­sur­ers be­ing less will­ing to be ag­gres­sive in the mar­ket.”

Broussard summed up the at­mos­phere of in­surer un­cer­tainty. “We look at it as a 24-month R&D project,” he told in­vestors. “If it’s not sus­tain­able, then we’ll make the de­ci­sion to exit that mar­ket­place.”

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