Tuesday, April 22, 2014

Obamacare Observations From the Marketplace

A few observations from my travels and conversations in the marketplace:

About half of the enrollments are coming from people who were previously insured and half are not. When I try to gauge this, I go to carriers who had high market share before Obamacare and have maintained that through the first open enrollment. Some carriers have said only a small percentage of their enrollments had coverage before but health plans only would know who they insured before.  By sticking to the high market share carriers who have maintained a stable market share and knowing how many of their customers are repeat buyers, it's possible to get a better sense for the overall market. Other conventional polls have suggested the repeat buyers are closer to two-thirds of the exchange enrollees.

The number of those in the key 18-34 demographic group improved only slightly during the last month of open enrollment so the average age is still high. The actuaries I talk to think this issue of average age is made to be far more important than it should be. It is better to have a young group than an old group. But remember, the youngest people pay one-third of the premium that older people pay. The real issue is are we getting a large enough group to get the proper cross section of healthy and sick?

The bigger concern continues to be the relatively small number of previously uninsured people who have signed up compared to the size of the eligible group.

The recent report released by Express Scripts reporting on very costly pharmacy claim experience from January and February enrollees is far more concerning than the average age.

About 15% to 20% of new enrollees are not completing their first month's enrollment by not paying their premium, according to my marketplace discussions.

I note that the California exchange just reported their non-pay number was 13%. That makes sense to me because California did not have the information technology difficulties the feds did––many of the non-pays were caused by system related problems like duplicate enrollments and "834" transactions that weren't able to be processed. California also appears to have a population more amenable to the new health law and therefore more likely to pay than the national average.

On the other hand, the Georgia insurance commissioner reported that only about half of those who enrolled had paid their premiums by March 31––although any enrollments between March 15th and April 15th have until April 30th to pay.

If California and Georgia can tell us the number of people who have completed their enrollment and paid for their coverage, why can't the Obama administration? As I wrote on this blog recently, the carriers all have this data and can make it available to the administration in a matter of a few days––or even hours.

The back-end of  HealthCare.gov, that reconciles enrollment between the feds and the health plans, is still not fully built and won't be for months to come. The feds and the carriers are still talking about how parts of the reconciliation system will work.

While the Obama administration could easily poll all of the carriers to be able to report a more accurate enrollment, I don't expect them to report the real enrollment numbers until after these last systems are built––and that could easily be months away.

When the back-end is finally built and tested, we will have the mother of all accounting reconciliations trying to clean up months of workarounds and patches. It may well be that the back-end of HealthCare.gov won't be fully built until close to the first anniversary of the launch of Obamacare.

The administration would be doing themselves a favor to report the actual enrollment sooner rather than later. Every month, an individual health insurance block loses 2% to 3% of its members. Generally, the "change of life" adds about offset the deletes. But in this case, while people can buy coverage if they have a qualifying event, the general market cannot buy coverage until the next open enrollment period. The upshot is that this first Obamacare block is likely to lose lots of people on a net basis as the people who simply let their coverage lapse can't be offset by those who later simply become interested in being insured before the next enrollment. The longer the administration waits to give us a solid enrollment number the farther they are going to be from eight million.

There is a lot of dissatisfaction being communicated from consumers to insurance company call centers and their agents about the new health insurance plans, particularly compared to the plans people are used to. Many people likely signed up because having insurance is the right and responsible thing to do––especially if their plan was canceled. Many who had insurance before could now get a subsidy and sometimes a better plan for their out-of-pocket premium. Many also feared the fine. Some have health problems and they can finally get insurance. But it would appear we shouldn't confuse someone wanting to buy an Obamacare policy with an average Silver Plan deductible of $2,600, and the likelihood of a narrow network, with the person necessarily being pleased with the product.

There is a concern that the administration sees the recent flurry in enrollment as evidence Obamacare is working and therefore the plan offerings do not have to be improved. Without more attractive offerings there is concern that the currently poor penetration into the eligible market will not improve.

What will the 2015 rate increases be? 9.9% There will be some variation in rate actions because the Obamacare enrollment outcome varies considerably among states. Also, some carriers' rates turned out to be too high and others too low when compared to their competitors which will likely lead to some compression in the local markets as these outliers get closer to typical rates. This could produce a few significant increases or decreases for 2015.

But generally, I really do expect a lot of rate increases just below 10%. The carriers do not have, and will not have, claim data worth much by the time the 2015 rates are due between May 27 and June 27. All of the people who signed up in the last half of March, for example, have an effective date for coverage of May 1––we won't know anything about their claims costs.

Health plans will have very little claim data on the new enrollees when they must complete their pricing analysis. Any rate increase of more than 10% is subject to regulatory review under federal guidelines. Ironically, if regulators challenge a carrier's rate increase, no matter how concerned the health plan is with the enrollment demographics, the carrier will have very little hard claim data with which to defend the action.

Health insurers are also protected from most underwriting losses in 2015 because of the $20 billion reinsurance scheme. Simply, the carriers are worried about the Obamacare risk pool, they have no hard data to credibly project or defend a challenge from a regulator, and 9.9% is the most they can generally get unchallenged.

Will any health plans exit the Obamacare exchange markets in 2015? No. The program is so immature at this point that no one's original strategic calculus over Obamacare has changed. Health plans do not expect Obamacare to be repealed. They expect it to evolve. The current or future Obamacare represents all of the individual and small group health insurance market in the U.S. You can't be in this substantial market without going along for this ride.

That their losses are minimized through 2016 by the $20 billion Obamacare reinsurance scheme is no small issue in their calculations.

Many health plans are a lot more concerned about their Medicare Advantage payment rates than their Obamacare results right now.

When will we finally have a good handle on Obamacare's claims experience? Years. In a year we will have some pretty good data on the 2014 enrollments. But, then we will have just had the 2015 open-enrollment and there will be questions about the impact these new people will have on the overall program. In addition, the 2015 open-enrollment will again have millions of relatively healthier cancelled policyholders signing up for Obamacare because their one year extensions will be running out (don't count on a lot of carriers extending these policies further).

Really, we won't have a good handle on Obamacare's costs until the program's enrollment stabilizes so that the group's final composition can be accurately measured, and we then get at least a year of claim data from that point.

Also, at the end of 2016 "the training wheels will come off" as the $20 billion reinsurance scheme ends.

It seems that every time there is a snippet of news––an insurance company is entering the market for 2015 so that means it's working, or an insurance commissioner reports lots of people aren't paying their premium so it's not working––people try to make something of it.

This is going to take years to play out.

The politics of Obamacare will likely be more volatile than the health plans' near term rate actions.
Avoid having to check back. Subscribe to Health Care Policy and Marketplace Review and receive an email each time we post.

Blog Archive