The deadline for 1/1/14 enrollment is now past. The administration reports that over one million have enrolled in PPACA. The states are all trying to compile their actual figures and everyone has questions. The law will start imposing many changes in a few days and most will drive up the cost as we go through 2014.
So what now?
Well there are a number of things we can expect and that are predictable but more importantly there are few things that probably will happen and are not being talked about much. I won't review all the expected changes the law will bring because those have been discussed and shared a million times. We all know those changes are going to happen and as stated above many will drive up premiums in 2014.
So what is not being talked about much? Enrollment stats are not yet being discussed much. Specifically, how many are actually paying not just enrolling; how many are canceling; how many are being subsidized and what the age distribution looks like. Why is this important? All plans on the exchanges were based on certain core actuarial assumptions and if the enrollment varies significantly from those assumptions then the rates will have to be adjusted. I doubt any carriers will adjust their rates downward even if the enrollments end up being better than they assumed, but all will make adjustments if the enrollment produces stats that are worse than the original assumptions.
Sadly there is not a great deal of credible statistics yet but I have found a few we can look at as leading indicators. I chose California to look at as they have the highest enrollment of any state and have produced more stats than most. Here is what I found today:
This high subsidy rate is not specifically a big issue for the carriers as long as the Feds and State send funds as planned but it is a big deal financially for the government. If the government planned on subsidy rates lower than 90% then they will have to find extra funding to support this. Clearly this means more taxes. The bad news imbedded in this for the carriers is that subsidized enrollees trend more to the unhealthy than healthy and this may cause adverse selection (see below).
The enrollment having only 21% under age 34 is a problem for everyone as this creates a skew that may not be within the core actuarial assumptions used for rate development. If this is true then rates will have to be adjusted upwards. Since we do not yet have the male to female ratio we can't define that effect but should more females enroll than expected this too will drive claims up and subsequently premium rates. Likewise if the number of "unhealthy" folks that enroll is higher than expected then again this will cause rates to rise. For example California had a high risk pool (PCIP) as many states did from 2010-2013. Again they enrolled the most number of people in the nation - about 15,000. These folks have now all been shifted to the Covered California Exchange. Since these people were very sick their claim numbers are considerably higher than the average population. Unless carriers anticipated this they may find that their losses for these early California enrollments will be much higher than anticipated. This will lead to rate increases.
Adverse selection has always been a worry of the folks at HHS and sadly the way they designed PPACA has only served to foster this. The early enrollment would suggest that this is going to be a reality and in turn will mean two unpleasant facts. One is higher premium rates over time (both in and out of the exchanges). And second that more subsidies will be needed which means more taxes will be levied. These taxes will be varied but no mater how they come we will all be paying more.
So forget all the headaches of the website debacle and how long it has taken to fix. Focus now on the more relevant problem - cost. Long term we might find that with all these increased costs in PPACA that a well designed National Healthcare system might be cheaper and more efficient. Perhaps Hilary will look into this for us as she develops her 2016 campaign for the White House. Happy New Year!
So what now?
Well there are a number of things we can expect and that are predictable but more importantly there are few things that probably will happen and are not being talked about much. I won't review all the expected changes the law will bring because those have been discussed and shared a million times. We all know those changes are going to happen and as stated above many will drive up premiums in 2014.
So what is not being talked about much? Enrollment stats are not yet being discussed much. Specifically, how many are actually paying not just enrolling; how many are canceling; how many are being subsidized and what the age distribution looks like. Why is this important? All plans on the exchanges were based on certain core actuarial assumptions and if the enrollment varies significantly from those assumptions then the rates will have to be adjusted. I doubt any carriers will adjust their rates downward even if the enrollments end up being better than they assumed, but all will make adjustments if the enrollment produces stats that are worse than the original assumptions.
Sadly there is not a great deal of credible statistics yet but I have found a few we can look at as leading indicators. I chose California to look at as they have the highest enrollment of any state and have produced more stats than most. Here is what I found today:
- 109,296 people have enrolled in the Covered California exchange
- We do not know how many have actually paid but it is some number lower than the enrollment
- 98,813 of those enrolled are getting a subsidy - that is just under 91% subsidized
- 30% of the enrollees are over 45 years old
- Just 21% are under 34 years old
This high subsidy rate is not specifically a big issue for the carriers as long as the Feds and State send funds as planned but it is a big deal financially for the government. If the government planned on subsidy rates lower than 90% then they will have to find extra funding to support this. Clearly this means more taxes. The bad news imbedded in this for the carriers is that subsidized enrollees trend more to the unhealthy than healthy and this may cause adverse selection (see below).
The enrollment having only 21% under age 34 is a problem for everyone as this creates a skew that may not be within the core actuarial assumptions used for rate development. If this is true then rates will have to be adjusted upwards. Since we do not yet have the male to female ratio we can't define that effect but should more females enroll than expected this too will drive claims up and subsequently premium rates. Likewise if the number of "unhealthy" folks that enroll is higher than expected then again this will cause rates to rise. For example California had a high risk pool (PCIP) as many states did from 2010-2013. Again they enrolled the most number of people in the nation - about 15,000. These folks have now all been shifted to the Covered California Exchange. Since these people were very sick their claim numbers are considerably higher than the average population. Unless carriers anticipated this they may find that their losses for these early California enrollments will be much higher than anticipated. This will lead to rate increases.
Adverse selection has always been a worry of the folks at HHS and sadly the way they designed PPACA has only served to foster this. The early enrollment would suggest that this is going to be a reality and in turn will mean two unpleasant facts. One is higher premium rates over time (both in and out of the exchanges). And second that more subsidies will be needed which means more taxes will be levied. These taxes will be varied but no mater how they come we will all be paying more.
So forget all the headaches of the website debacle and how long it has taken to fix. Focus now on the more relevant problem - cost. Long term we might find that with all these increased costs in PPACA that a well designed National Healthcare system might be cheaper and more efficient. Perhaps Hilary will look into this for us as she develops her 2016 campaign for the White House. Happy New Year!