Adverse Selection on the HIEs – It’s Not (Just) About the Federal Website

Richard

Please see the SSR Health YouTube Channel for a detailed video walk-through of this research note

Through December 28, enrollment in states operating their own health insurance exchanges (HIEs) is roughly 2x (in terms of the percent of potential beneficiaries enrolled) the enrollment rate for states relying on the federally run HIE (a.k.a. Healthcare.gov). Total enrollment thru December 28 was 2.2M persons; if enrollment rates in the federally managed states were as high as those in the states that manage their own exchanges, overall enrollment would be roughly 2.9M to 3.4M

Beyond reducing overall enrollment, there is some question as to whether the federal HIE’s problems will foster adverse selection – i.e. that less healthy potential enrollees will find it worthwhile to persist thru a difficult enrollment process, where healthier enrollees will not

We can’t see the health of enrollees, but can see their ages. Persons aged 0-34 represent 32.0% of enrollees on the state-based HIEs, as compared to 28.7% of enrollees on the federal HIE. Thus in absolute terms younger (and presumably healthier) enrollees are in fact less prevalent on the more difficult to navigate federal HIE

That said, comparing the age-mix of state and federal HIE enrollees is on par with comparing the rate at which two ships are sinking – neither appears to have enough young / healthy enrollees to avoid adverse selection, so the small difference in age-mix between the two exchange types doesn’t really matter

Across all of the HIE’s – state and federal – 18 – 34 y.o.’s are about 24% of enrollees (24.7% on the states; 23.3% on the federal) – far short of the 40% enrollment share we believe is necessary to avoid adverse selection

Barring an unlikely improvement in enrollee age-mix over the remainder of the open enrollment period (ends March 31st), we expect adverse selection in the first year of the HIE’s operation. This implies a high likelihood of further regulatory and/or legislative reforms in the relatively near term

We have no realistic means of forecasting specific changes to policy, but believe policy options are limited to the following: allowing greater premium differences based on age, allowing higher out-of-pocket maximums, reducing the scope of benefits contained within the definition of minimum essential coverage, increasing subsidies, merging these poor risks into a pool containing better risks; and/or increasing penalties

 

For our full research notes, please visit our published research site

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