Tuesday, 23 August 2016 18:53

Health Insurance Exchanges – Success or Failure?

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Recent headlines, like the one in USA Today, “Health Care Costs to Rise in 2017,” are creating a stir in the world of health insurance exchanges.

Aetna’s recent decision to drop out of exchanges in 11 states will mean less competition and possibly result in increased premiums to enrollees. The general consensus is that this move was inevitable as payers move to compete on price in place of enrolling the healthiest consumers. Recent reports of substantial increases from some insurers have led to concerns regarding the stability of the Affordable Care Act’s (ACA’s) marketplaces.

A recent study by the Kaiser Foundation of the two lowest cost silver plans found that premiums will be increasing by a weighted average of 9 percent compared to a 2 percent increase from 2015–2016. This increase is not the amount the typical enrollee will see since approximately 80 percent of the people enrolled in the exchange plans receive federal tax credits to help pay for their premiums.

However, it should be noted that, as they say, there is no free lunch, and the increase in premiums will be paid for through an increase in federal tax credits, which is ultimately paid for by the tax-paying public. While the initial premise was that subsidies would eventually be paid for through Medicare program savings and through increased taxes on high-income individuals, the question remains whether the projected savings will ever occur.

 Some state exchange programs are seeing even larger increases. For example, in California, premiums are anticipated to increase 13.2 percent next year. The increase in premiums is driven by several factors, including the risk pool—in other words, the utilization of healthcare services by those enrolled in the specific plans of the exchanges. That is why it is important for the pool to include a portion of healthy enrollees with minimal healthcare service utilization who offset those in the pool who are heavy users of healthcare services.

As we know from our college statistics class, the larger the pool of enrollees the greater the likelihood the distribution will include a sufficient number of low users so that the premiums can be held at a reasonable level. Far and away the largest portion of premiums is the actual cost for the healthcare services being provided. These costs consist of two main components: the unit cost for the service and the number of units that are consumed.

Other drivers include administrative costs related to product development, sales, enrollment, claims processing, customer service, and regulatory compliance. Probably the most significant impact on premiums, outside of pure healthcare costs, will be the sun-setting of the reinsurance program funding. The ACA provided payments to health plans from 2014–2016 declining each year. Next year (2017) will be the first year with no funding, which will result in a corresponding increase in premiums.

Given these variables and the movement by some of the larger payers to decrease their participation on the exchanges prompts the question of whether it will be more difficult for current and future enrollees to obtain health insurance at affordable prices. Couple this with the upcoming election and the vastly different views on the ACA by the Republican and Democratic nominees and the variables increase exponentially.

So while projections for 2017 indicate much larger premium increases and some fallout by the payers, it is too early to tell whether these changes will have any long-term impact on the continued growth and evolution of the healthcare exchanges.

Stay tuned …

About the Author

Greg Adams is the chief strategy officer for Panacea Healthcare Solutions and has over 35 years of experience in the field of healthcare, including 20 years’ experience as a hospital CFO. His experience includes financial operations, managed care contracting, physician practice management, patient accounting, patient access, health information management, materials management, and real estate development. Greg is the past chairman of the national Healthcare Financial Management Association (HFMA), having served as the chair of its Board of Directors in 2011–12. In that role he oversaw the services the organization provides to its 40,000 members. Greg speaks extensively on healthcare reform and the transition to a value-based payment system. His speaking engagements include national, regional, and state programs. From 2002–2005, he served as a member of HFMA’s National Board of Directors for and as president of the New Jersey chapter in 1997–98. He has also served as a member of the Board of Trustees and chairman of the Finance Committee at St. Ann’s Home for the Aged, Jersey City, N.J.

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Last modified on Tuesday, 23 August 2016 18:57

Greg Adams is the Chief Strategy Officer for Panacea Healthcare Solutions and has over 35 years of experience in the field of healthcare including 20 years experience as a hospital CFO. His experience includes financial operations, managed care contracting, physician practice management, patient accounting, patient access, health information management, materials management and real estate development.  Greg is the Past Chair of the National HFMA, having served as the Chair of its Board of Directors in 2011-12. In that role he oversaw the services the organization provides to its 40,000 members. Greg speaks extensively on healthcare reform and the transition to a value based payment system. His speaking engagements include national, regional, and state programs. He has previously served as a member of the National Board of Directors for the Healthcare Financial Management Association from 2002-2005 and as President of the New Jersey chapter in 1997-98. He has also served as a member of the Board of Trustees and Chairman of the Finance Committee at St. Ann’s Home for the Aged, Jersey City, New Jersey.