Will public health insurance exchange enrollees' higher costs ease over time?

The public health insurance exchange population likely will continue to be characterized by members who are sicker and costlier than people covered by group health plans, but sources say most health insurers are in it for the long haul.

A recent Blue Cross Blue Shield Association study billed as the first of its kind found that individuals who enrolled in BCBS plans in 2014 and 2015 had more illnesses, used significantly more medical services and cost more than those enrolled in BCBS plans before the public exchanges authorized under the Affordable Care Act began operating as well as those covered by employer-sponsored health plans.

For instance, people who got health insurance recently have higher rates of diabetes, depression and coronary artery disease than people who had individual health insurance prior to 2014 and group health plans. They also were admitted to the hospital more often and used outpatient services more frequently.

Medical costs for the newer public exchange enrollees were 18.7% higher than employer-based group plan members in 2014 and 22.3% higher in 2015, according to the Blues study, which did not answer the question of whether the high disease rates and costs will subside and alleviate concerns that some major health insurers may drop out of the exchange business.

“The question comes down to does this market ever stabilize in the long term to get to a point where it's either similar to employer-based coverage or at least not dramatically higher than some of the costs that you see in traditional group-based coverage?” said Chris Sloan, Washington-based senior manager with consultant Avalere Health.

Pittsburgh-based Highmark Health, a Blues affiliate; UnitedHealth Group Inc.; Humana Inc. and Aetna Inc. all have reported losses related to their public exchange health insurance business.

Insurers Want Change

“The carriers have been very vocal about the changes they would like to see in this market to make it viable,” Mr. Sloan said. Health insurers want to change requirements for special enrollment periods, which they say are too relaxed and allow individuals to enroll in coverage when they need treatment, then drop it once they complete the treatment.

Insurers are also calling for greater compensation from the health reform law's risk adjustment program, which transfers payments from plans with lower-risk enrollees to plans with higher-risk, more costly enrollees.

Insurers also are increasing deductibles, raising premiums and narrowing their networks to increase the exchange plans' profitability, said Stephen Zaharuk, New York-based senior vice president at Moody's Investors Services Inc.

Health insurers realize “that this is a long-term issue. It's going to take much longer to stabilize than we thought,” he said. “The insurance companies would somehow like to attract (the healthier) population and I think that's what has to happen.”

Still, sources said they doubt insurers will pull out of the exchange market altogether.

“Bottom line, the insurance companies want this to be successful,” Mr. Zaharuk said. The exchange business is “a good deal for the insurance companies. It just has to be fixed.”

“Carriers see some future growth in this segment and I don't think they are eager to pull out,” said Katherine Hempstead, Princeton, New Jersey-based senior adviser to the vice president at the Robert Wood Johnson Foundation. “I think there are ways to improve the stability of the market, and I think that the private sector and the regulators need to work together to figure out what those strategies are.”