Changes in health insurance premiums first and foremost reflect prevailing trends in healthcare spending, which as we well know, increase annually. This year, however, the trend in medical spending was relatively modest, hovering at about a 5% increase. A recent report from Milliman found that the overall increase in a standard family plan for four in 2016 was 4.7%, an all-time low in the 15 years they have been tracking this trend.
What’s happening in the ACA Marketplace?
Yet, there are a number of reasons why premiums in the Affordable Care Act (ACA) marketplaces are expected to rise going forward relative to other health insurance market segments. One factor is the expiration of two of the “3 R’s”—stabilizers designed to minimize volatility in premiums—namely, risk corridor payments and reinsurance. In the case of risk corridors, there is also the impact of the past and, most likely, future underpayment, which is already generating a number of carrier lawsuits.
There is also a general impression that plans in the ACA marketplaces were underpriced. The clearest way to see this is through the financial performance of carriers, many of which reported losing money on the exchanges in 2016. The financial performance of many carriers suggests that premiums were not adequate to prevent losses in light of both the utilization and enrollment of the populations served.
Regarding the enrollment issue, there have been some responses from the Centers for Medicare and Medicaid Service (CMS) that are designed to make it more difficult to enroll outside of the open enrollment period. A particularly important recent provision will require proof of prior coverage for those moving to new states outside of open enrollment. These changes will hopefully reduce some of the losses associated with churn in enrollment and attrition, which should mitigate the premium increase needed to stabilize the market. Regardless, an adjustment in rates is expected for 2017.
While ACA marketplace rates are expected to increase across the board in 2017, there is, mirroring previous years, likely to be significant geographical differences. A recent report by the Urban Institute found that in 2016, 30% of the population lived in a rating area with a decrease in the price of their lowest price silver plan while more than 35% lived in a rating area where there was an increase of 10% or more.
The pattern of premium changes between 2015 and 2016 suggested that a process of geographic convergence in which price increases were greater in lower priced regions may be underway. Many of these lower priced regions did not have well established individual markets prior to the ACA, and carriers may have had more difficulty pricing accurately. Premiums in 2016 increased less in parts of the country with more established markets, like New England. Similarly, premiums overall are higher in the more highly regulated state-based marketplaces, as compared with the states on the healthcare.gov platform.
Aside from premiums, significant geographic differences in overall plan design persist, with distribution of premiums and deductibles varying significantly by region. Eastern and Western states seemed to have a greater distribution of premium prices and a smaller range in deductibles while the reverse pattern characterizes the plans of the South and Midwest. These differences changed little between 2015 and 2016 and are elements to watch to see if there is further convergence in plan design in 2017.
What do we know about potential rate increases so far?
What we know about potential rate increases so far suggests that there may be further geographic convergence in 2017 as more underpriced regions continue catching up with the more established markets. Extremely preliminary rate request information suggests the pattern will repeat itself: Higher increases in states with less settled individual markets and requests for smaller increases in more mature markets. Much remains to be seen, as data from other states becomes available and the rate review process runs its course. More likely than not, we may see premiums in many states converge to levels comparable to those seen in more mature markets, such as state-based marketplaces or states in New England.
Strong markets and weak markets
While there may be a continued reduction in geographic variation, there are other factors that may lead to more persistent regional differences in premiums. As shown in the Urban Institute report on premium changes, rate increases between 2015 and 2016 were smaller in markets in more populated states, where there were more carrier participation and more variety in the types of carriers. Smaller, more rural states tended to have fewer carriers offer fewer plans in 2016. These weaker markets may experience greater premium increases and continued low carrier participation in 2017, which may further inhibit enrollment.
Several states are currently at risk of having only one carrier in 2017. While some of these markets currently have average or below average prices, many could become relatively expensive if they experience large increases. With relatively low carrier participation, remaining carriers will have considerable pricing leverage. Weak markets could become weaker. Many, but not all, of the states that UnitedHealth Group chose to exit in 2017 shared these characteristics.
Although much focus is on premium changes for 2017, there is reason to anticipate further product changes as well. Carriers took steps to reduce their exposure to high costs in 2016, and given their financial performance, more work may need to be done along these lines.
There was a major reduction in the number of broad network plans in 2016 and most new entrants to the market last year offered closed and primarily narrow network products. This change occurred at all metal levels and in all regions. The percentage of silver plans that were HMOs or Exclusive Provider Organizations increased from 61% in 2015 to 69% in 2016. While most leading hospitals were in-network with at least one marketplace plan in 2016, this may change in 2017.
We may also see a further reduction in gold plans although carriers are required to sell both gold and silver to remain on the marketplace. In 2016, the number of gold plans declined relative to other metal levels, specifically, the number of silver plans increased by 2.9%, gold plans declined by 8.7%.
There are also indications that some carriers may reduce their bronze offerings. The number of bronze plans increased very little in 2016, and we may see reductions in some markets in 2017. The actuarial value of bronze and silver plans seems to have grown closer in 2016, and average prices are quite close in many regions. While carriers have generally resisted government calls for standardization and simplification of plan offerings, the industry may be standardizing itself to an extent through some potential reductions in product offerings.
Continued evolution in cost-sharing
We also may see a continued evolution in cost sharing in marketplace plans in 2017. While there will be increased pressure from CMS for carriers to create standardized plans, there are market forces as well that may lead to reduced variation or other changes. There is a widespread perception that certain types of carriers—namely Medicaid MCOs such as Molina and Centene—are successful in the marketplace relative to other carriers. The Urban Institute found that rating areas with lower premium prices were more likely to include a Medicaid MCO. A recent analysis by McKinsey suggested that Medicaid MCOs were the only type of carrier that did not lose money in the marketplace.
Cost-sharing in Medicaid MCOs differs notably from other carriers. For example, with regard to emergency room cost sharing, all of the Molina and Centene bronze plans subjected emergency room use to the deductible, while more than half of the Anthem bronze plans used co-pays before the deductible. More carriers may adopt the cost sharing practices of the Medicaid MCOs in 2017. Another trend to watch will be cost sharing for primary care, where a number of new market entrants last year sought to reduce cost sharing for primary care visits.
Finally, and perhaps most interestingly, last year saw a few market entrants who tried to sell a distinct brand and specific customer experience. This was seen in Harken Health and the Zoom+ plan, where the characteristics of the clinic are major selling points. These plans are attempting to take something traditionally thought of as a weakness (i.e., a narrow network) and turn it into a strength, by making it a brand. The hope is that such a pitch may appeal to those without established provider relationships, particularly younger enrollees, and successful product development along these lines may improve take-up and market stability.