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Public exchange profits remain challenging

Insurers hopeful new market can stabilize


The public health insurance exchange population likely will continue to be characterized by members who are sicker and costlier than those covered by group health plans or other individual policies, but most insurers are expected to remain in the exchange business.

A recent Blue Cross Blue Shield Association study billed as the first of its kind showed that individuals who enrolled in BCBS plans in 2014 and 2015 had more illnesses, used more medical services and had higher medical costs than those enrolled in BCBS plans before the public exchanges, established under the Affordable Care Act, took effect as well as those covered by employer-sponsored group health plans.

People who got health insurance in 2014 and 2015 have higher disease rates than those who were already enrolled in individual coverage or those in group health plans, according to the report. They also went to the hospital more frequently.

And 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.

That people who bought health coverage through the exchanges are sicker and costlier than those who already had coverage outside the exchanges is no surprise since they may have not had health insurance before, sources said.

As public exchanges continue to dent insurers' profits, observers question whether the high disease rates and heavy medical spending will ease.

“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 at consultant Avalere Health.

“There's always going to be some movement of people who are sicker than average from the employer market into the marketplaces,” said Gary Claxton, Washington-based director of the Kaiser Family Foundation's health care marketplace project. That's because people who lose employer-based insurance likely would enroll in the marketplaces, especially if they are sick and qualify for tax credits, he said.

Still, “part of this going forward is going to depend on the outreach,” Mr. Claxton said. “If the (ACA) tax credits are able to reach more of the low income uninsured, a lot of them are relatively healthy, so (if they enroll) it would even out.”

Enrollment in the public exchanges so far has been lower than expected. About 12.7 million people signed up for coverage during the 2016 open enrollment season, according to the Department of Health and Human Services. That compares with a Congressional Budget Office projection last year that 21 million people would enroll by 2016.

More people will be motivated to enroll in coverage through the exchanges as their plans lose grandfathered status and as the penalty increases for not having coverage, sources said.

The individual penalty this year for not having health insurance is $695 or 2.5% of household income, whichever is higher, versus $325 or 2% of household income last year.

After two years in the market, insurers are beginning to price the health coverage they provide more accurately, said Mr. Claxton.

Insurers are doing so by raising deductibles and premiums while implementing narrower networks to help control medical costs. They also are calling for regulatory changes for the health insurance exchanges.

“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 changes to requirements for special enrollment periods, which they say are too relaxed and allow individuals to enroll when they need treatment, then drop coverage once they complete it.

Insurers also say 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, doesn't compensate them enough, Mr. Sloan said.

Changes are being made, but slowly.

The Centers for Medicare and Medicaid Services recently responded by tightening the rules on special enrollment periods and proposed changes to the risk-adjustment program.

CMS reduced the number of circumstances in which people can enroll in exchange plans outside of open enrollment, and said it would require documentation to prove they are eligible for special enrollment periods. CMS also said it is using more recent data, updating medical and drug trends and incorporating preventive services into companies' risk-adjustment calculations.

Though some health insurers have threatened to quit the exchanges or reduce their participation, most sources expect them to stick around.

Insurers have realized “that this is a long-term issue. It's going to take much longer to stabilize than we thought,” said Stephen Zaharuk, New York-based senior vice president at Moody's Investors Services Inc. 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 with the Robert Wood Johnson Foundation, who directs the foundation's work on health insurance coverage.

UnitedHealth Group Inc. is among insurers that have threatened to leave the public exchange business amid major losses.

Reports on Friday said United Healthcare had decided to end its health exchange offerings in Arkansas and Georgia effective in 2017.