Insurers worry adverse selection in health benefit exchanges could jeopardize commercial market
The bulk of individuals buying health plans through health benefit exchanges established by the Patient Protection and Affordability Act (PPACA) starting Jan. 1, 2014 will be low to low moderate-income earners, making less than 400 percent of the Federal Poverty Level (FPL). An actuarial projection by Mercer Government Human Services Consulting presented this week at a Sacramento, Calif. symposium sponsored by the California HealthCare Foundation estimates that just 25 percent of about 4.6 million Californians not covered by employer or government plans will purchase coverage through the California Health Benefit Exchange.
Most in the state’s individual market earning more than 400 percent of the FPL will purchase commercial insurance and managed care plan products offered outside the exchange, the Mercer estimate concludes. On the other hand, “virtually all” individuals earning between 200 and 400 percent of the FPL will opt to purchase their coverage through the exchange, Mercer projects, in order to benefit from subsidies in the form of tax credits.
That’s shaping up as a bifurcated individual market, giving rise to insurer concerns over the prospect of adverse selection, with higher cost insureds gravitating toward the exchange, particularly if commercial insurers continue their primary competitive strategy of avoiding those with pre-existing conditions. But as noted at this week’s Sacramento forum, insurers won’t be able to wall off higher risk individuals in the exchange since they will be required to pool risk from both exchange and non-exchange insureds. That has some insurers concerned that the experience of the exchanges could actuarially jeopardize commercial markets outside the exchanges.
The nascent California Health Benefit Exchange hopes to stave off adverse selection by penalizing or excluding from the exchange insurers that engage in marketing practices designed to cherry pick healthy individuals while directing higher-risk consumers to the exchange.
A New York Times piece published May 13 suggests insurers see tougher times coming once the exchanges open for business in less than three years. In the meantime, they’re making hay while the sun is shining and medical utilization is suppressed by a weak economy. “I think they’re going to go through a winter,” Paul H. Keckley, executive director of the Deloitte Center for Health Solutions, a research unit of the consulting firm Deloitte, told The Times.