On April 19, news broke that UnitedHealth Group is pulling out of the government-organized health insurance exchanges, remaining in just a “handful” of states. While the insurer’s exit likely does not preview a wide-scale Marketplace exodus, it does highlight continued challenges in the Affordable Care Act (ACA) exchange business, explained Todd Van Tol, Oliver Wyman’s Head of Health & Life Sciences for North America, in The Wall Street Journal. As a result, consumers can expect to see some plans seeking major premium boosts for 2017. “We don’t yet have stable ACA markets,” Van Tol told The Journal. “Indications are, we have in many markets another round of significant rate increases.” Here, Van Tol and Jac Joubert, of Oliver Wyman’s Actuarial practice, put these and other recent ACA market shifts into perspective:
UnitedHealth's move generated plenty of headlines, but not quite as many shockwaves. To begin, UnitedHealth Group was a late and somewhat cautious entrant to the individual exchanges. (The company sold plans in 34 states and served about 795,000 exchange enrollees out of a total of about 11 million total ACA exchange enrollees). And late last year, after the insurer posted higher-than-expected losses on its exchange products, UnitedHealth Group Chief Executive Stephen J. Hemsley had hinted the pullouts were coming.
UnitedHealth Group is not the only insurer struggling with its exchange populations, as many have reported encountering higher claims and risks than anticipated. And that sets the stage for the expected rate increase. In fact, we are already seeing some proposed rate increases. On April 11, insurers began filing their initial 2017 rate tables with the federally facilitated Health Insurance Marketplace. The very next day, the U.S. Department of Health & Human Services (HHS) went on the offensive, publishing an issue brief that aims to put proposed rate increases in context.
The brief explains the proposed 2017 rates do not foretell what consumers will actually pay, as the proposals do not take into account rate review, consumer shopping behavior, or tax credits. It also makes the point that for plan year 2016, these initial proposals suggested higher premium increases than what Marketplace consumers actually ended up paying. The average premium changes reported in insurers’ rate announcements assume no consumer leaves the Marketplace, no new consumers enroll, no one switches plans, and no one receives tax credits. In reality, quite the opposite is true. The brief then details how much rates actually increased from 2015 to 2016 (about 8 percent, nationally) and dives into the behavior of Marketplace shoppers.
While the brief is primarily a vehicle for HHS to dampen rate-hike concerns, the data, combined with the UnitedHealth Group departure, does provide some important insights into what it takes to succeed on the exchanges:
Enrollee shopping habits
One of the most interesting take-aways from the issue brief is the extent to which ACA enrollees are willing to shop around to reduce costs. The brief found that among 2015 consumers who re-enrolled in the Marketplace for 2016 coverage, 43 percent (2.4 million consumers) chose to switch plans. That is an increase from previous enrollment, when just 31 percent of re-enrollees switched plans. Nationwide, re-enrollees who switched saved an average $42 per month in premium costs.
Market meaning: Price matters and people are getting better at shopping. The high percentage of shoppers/switchers demonstrates that people are clearly willing to move to save money; and this indicates that the Marketplace is effectively promoting competition in a highly price-sensitive market segment.
Not sticky, not yet
Marketplace enrollees have not yet proven to be very sticky. Of the 37 Healthcare.gov states, nine saw more than half of enrollees change plans. In Arizona, nearly 75 percent of re-enrollees changed plans. While the 2016 changes were likely price driven, we expect there to be less variation in prices going forward, as payers gain access to more complete information about the health and costs of the Marketplace population.