Health plans must calculate what they will charge for 2015 exchange plan premiums despite the lack of detailed data from the just-ended enrollment window. Rate filing deadlines are fast approaching: May for some states and June for those using the HealthCare.gov marketplace.
One sure thing – premium prices will rise next year. Underlying medical trends will be in high single digits, said Chris Carlson, principal and consulting actuary at Oliver Wyman, at a recent conference sponsored by America's Health Insurance Plans (AHIP).
"We're starting out there and paying an increase in premium on top of that. We're looking at double digit increases," he said. "We're going to be answering to the public why the rates are going up even though there is plenty of reason for it."
The following four considerations will factor into insurers' 2015 pricing:
1. The risk pool may differ somewhat. Sicker individuals tend to enroll ahead of healthier people. Hard data will not be available for those who waited until the end of March to enroll. "We expect to have higher morbidity in the pricing data that is available to us," Carlson said.
He cautioned that even a slight deviation from assumptions can have a substantial impact on an insurer's medical loss ratio and profit margin. For example, a shift in the age of enrollees by two years older could result in higher claims and less subsidies from the premiums of generally healthier younger adults.
2. The risk mitigation program – risk adjustment, reinsurance and risk corridor – continues but at lower funding in 2015. James O'Connor, principal and consulting actuary for Milliman, said these 3Rs, which aim to minimize insurers' risk through 2016 for covering unhealthy members to whom they cannot deny coverage or charge higher premiums, are crucial to plans' pricing before it sunsets.
"The 3Rs really introduce topsy-turvy results in terms of what you would generally think," he said in citing a Milliman study. For example, young males are typically more profitable than older males, and women in their childbearing years generally are more expensive. The 3Rs change that. Of the 127 conditions handled by the risk adjustment system, all but nine resulted in a profit margin greater than the 3 percent target in the pricing, he said.
According to federal regulators, the threshold or attachment point for reinsurance eligibility goes up to $70,000 in 2015 from $45,000 in 2014 for insurer costs per person and a reinsurance cap of $250,000 per person. That will all be recognized in pricing, O'Connor said. The coinsurance rate will be reimbursed at a much lower degree – 50 percent in 2015 from 80 percent in 2014.
"In 2014, we saw anywhere from 6 to 15 percent reduction in rates because of the reinsurance program in the individual market," he said. With far less reduction, "we'll see a rate increase from 2014 to 2015 due to the lower amount that will be available through the reinsurance program."
3. Narrow provider networks were a key reason 2014 exchange rates ended up lower than most had predicted, and will continue in 2015. "It is harder to distinguish how much of the rate reductions were due to the introduction of a narrow network versus market positioning and market competition," O'Connor said.
Some narrow networks are valued-based, high performance networks that deliver high quality care and try to minimize cost. Others may just offer incidental value depending on the providers, although they can be an underwriting tool to attract healthy people.
Consumers are becoming more aware of narrow networks, but they don't yet have the tools to evaluate plan and network differences. "Over time, value networks will win out because word will get out," O'Connor said. "We will see more and more value networks being created, even going into 2015."
4. Insurer positioning next to the lowest rates is an important strategy to be competitive. The tactic may have required giving up profitability for 2014 in order to attract membership. In 2015, that strategy will be critical as enrollment is expected to double while the 3Rs remain in effect.
The presence of the risk corridor program will allow plans to continue to be price-aggressive. "But once that program ends in 2016, companies will need to be a little more careful about how they are pricing," he said.