The Agenda

Who Are the Enrolled?

CNBC health-care reporter Dan Mangan checks out one of the unanswered questions about the Affordable Care Act’s insurance plans so far: How sick are the people who are buying them?

This is a more complicated and important question than examining how many young or old people are buying plans on the exchanges. And it’s a question that the ACA has actually made it woefully difficult to answer, while making it a much more costly issue for insurers. So insurance companies are doing their best to find out:

Insurers are deploying strategies to figure out just who is enrolled. They range from introductory phone calls, mailings, prompts on social media, and even to cash incentives to get customers to disclose details of their health, or to go to the doctor to get checked out. . . .

“The insurance executives understand this is a brand new group of customers they know very little about,” said Ceci Connolly, managing director of the Health Research Institute at PricewaterhouseCoopers. “So they have been devising a number of ways to proactively reach these customers and learn about these customers’ health status.” . . .

“In the first step we are calling new members and inviting them to ask questions about their health plans, and we are also asking a few basic health questions,” [Independence Blue Cross of Pennsylvania spokesman Judimarie] Thomas said. “Over the next few months we will continue to contact new members through mail and email with information on our wellness programs, our online tools and resources, on how to use the medical benefits and prescription coverage, and other important programs or benefits.”

“Where appropriate, we will refer new members to our medical management programs or encourage them to see their primary care doctor,” Thomas said.

There are three reasons they want to do this: One, to get certain types of preventive care in motion for people with particularly acute health problems that may have been ignored, to prevent higher costs down the road. Two, to get a sense of what their claims costs will be this year, a useful financial matter — they’ve already had two-and-a-half months’ worth of enrollment, but people are still enrolling. In fact, some of the sickest customers, though a relatively small number, may not have enrolled yet at all, thanks to the Obama administration’s extension of the federal high-risk pool system through April (more on the issue that presents here). 

But most important, and most interesting, is that the health of the actual enrollees — and therefore what they cost insurers — is what’s going to determine whether predictions about the enrollees were accurate, which determines whether insurers lose a bunch of money on the exchanges this year, and whether they have to raise premiums a lot next year.

Insurers don’t know this at all — before the ACA, in all but a few highly regulated states, insurers asked customers a detailed set of questions on insurance applications about their health, which could help them predict how much the applicants would cost. Now, insurers can’t.

The general public and the media have focused on the mix of young and old enrollees in the Obamacare exchanges. Old people cost a lot more to insure than young people, so this isn’t a bad rule of thumb. The makeup of the exchanges nationally has turned out to be much less favorable in that respect: HHS predicted that about 40 percent of enrollees would be young adults, when more like 25 percent have been so far. (This breakdown could be even worse in certain states, each of which is its own risk pool.)

And the disappointing youth enrollment, if HHS had similar projections to what the Congressional Budget Office had, has real fiscal consequences: Older Americans are more prosperous, but because their premiums are much higher and premiums are capped as a share of income, more older enrollees should mean, ceteris paribus, more money is spent on Obamacare subsidies.

But that isn’t necessarily the biggest issue, because the ACA does allow insurers to charge different premiums based on age, and insurers at least know how old you are. It doesn’t allow any discrimination based on health status, and its requirement that all plans provide comprehensive benefits and offer coverage to any applicant will push sicker customers to enroll and healthier customers to stay away.

The degree to which insurers can charge different premiums for age is limited: The ACA prohibits, through something called an age-rating band, insurers from charging older customers more than three times more than what they charge young customers. But there’s also a limit to which insurers want to discriminate against the old: In a totally free market, insurers say they’d charge about a six-to-one ratio. Interestingly, with our federal health-care regulations as-is, if you allowed insurers to charge what they want based on age, it wouldn’t make a huge difference. Indeed, the Kaiser Foundation has projected that disappointing youth enrollment could cost insurers substantially, but won’t force up premiums dramatically. The age-rating bands and the issues they introduce are not nearly as disruptive to the market as the fact that the much higher cost of plans on the individual market — whether they’re better and available to more people or not — will entice more sick people than it does healthy people. 

Age isn’t a bad proxy for that and plays into it, but it’s not nearly good enough. That’s why insurers want to know how sick their enrollees are — they need to know how much health care enrollees will consume. This is, of course, an issue every year, as regulations reduce the ability insurers have to determine these things before selling plans, and risk-sharing mechanisms with other insurers reduce their incentive to do so. But the massive disruption the ACA has wrought on the individual insurance market made it nearly impossible this year: Insurers, and HHS, did their best to project what would happen, but we don’t know if the people signing up are even more costly than the youth-enrollment numbers indicate. Certainly, the fact that fewer people are enrolling than expected is a bad sign: The marginal customer should be healthier than the one before him.

Besides the fiscal, economic, and political consequences for insurers and the law this year, this matters for the way it functions down the road: Insurers badly need to know what enrollees look like and how much they’ll cost in order to set premiums for next year. That process has to begin in earnest just two months from now, which is partly why some of the Obama administration’s more marginal tweaks to the law represent a real problem. The same problem applies, in the longer term, to the lawless “keep your plan” fixes that the Obama administration has offered for political reasons – now through 2016, insurers still won’t know who’s going to be forced and subsidized into their plans by the law.

(As an aside, a regulation called risk adjustment provides that individual insurers don’t take huge losses because they enroll a particularly sick pool. But it means that all insurers need to set rates that they think are commensurate with expected health costs of the insured — and they don’t know what those costs are.)

Patrick Brennan was a senior communications official at the Department of Health and Human Services during the Trump administration and is former opinion editor of National Review Online.


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