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Public health exchange enrollments may fall short of insurer needs

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The projected number of enrollees in health care plans purchased through public health insurance exchanges likely will not be sufficient to absorb the costs incurred by insurers providing those plans, Moody's Investors Service Inc. said in a report released Monday.

The New York-based credit rating agency said lower-than-expected enrollment growth in the public exchanges established under the federal health care reform law would be “credit negative” for participating U.S. health insurers, particularly smaller insurers without sufficient diversification in their books of business.

“These entities have been relying on increased volume to absorb fixed operating costs and introduce some healthier and younger enrollees to improve the overall risk profile of the insured pool,” Stephen Zaharuk, senior vice president at Moody's, wrote in the report.

The U.S. Health and Human Services Department last week released projections for the number of individuals it expects to enroll in exchange-based coverage plans in 2016. The agency expects year-end enrollment in the exchanges to range between 9.4 million and 11.4 million, and has set its target enrollment for the year at 10 million, an increase of 900,000 over the projected 9.1 million year-end enrollees in 2015.

However, Mr. Zaharuk notes in his report, “the net increase in enrollment will be even less than 900,000 because the HHS projection includes individuals that it expects will switch coverage to exchange policies from nonexchange polices.”

HHS' year-end projections for 2016 are also well below the most recent estimates published by the Congressional Budget Office, which projected exchange enrollments to reach 20 million by the end of next year.

“With the increase in enrollment in ACA plans to 9 million in 2015 from approximately 7 million in 2014, insurers expected that there would be significant membership growth in future years and that these enrollees would be healthier individuals, stabilizing the risk profile of the pool and eventually creating a profitable business for insurers,” Mr. Zaharuk wrote in his report. “The new membership projection challenges this assumption.”

Earlier this month, the U.S. Centers for Medicare and Medicaid Services announced that the temporary risk corridor program — a three-year financial stabilization program built into the Patient Protection and Affordable Care Act to protect insurers from adverse risk selection and pricing volatility resulting from the law's implementation — will only cover 12.6% of the reimbursement claims insurers have submitted for the 2014 fiscal year.

Insurers requested a total of $2.87 billion in reimbursements for costs incurred in 2014, but will receive just $362 million, based on CMS' estimates of the risk corridor charges it will collect for the year.

“Based on our analysis and the fact that insurers have instituted significant rate increases for 2016, we expect that the sector will also incur significant losses in 2015,” Mr. Zaharuk wrote in his report.