ACA Enrollment and Adverse Selection Pressures – An Update

Richard

Current health insurance exchange (HIE) enrollees skew older, to the extent that adverse selection pressures appear highly likely. Only 25% of enrollees are aged 18-34, as compared to the 40% enrollment share presumably needed for premiums and claims to balance across the HIEs

The argument is being made that enrollees’ age is less relevant than their health status, which is to draw a technically correct but practically meaningless distinction between known age and probable health. For this argument to pan out, the typical HIE enrollee must be dramatically healthier than his or her age and income would imply

We put numbers to this. At the currently enrolled age mix, for premiums collected to cover claims paid, and assuming HIE enrollees aged 35-64 have normal health for their age and incomes, the 18-34 year old HIE enrollees must:

be 21pct less like to incur an injury or develop an illness requiring urgent care;

weigh 17 pounds less;

have a 28pct lower rate of obesity;

have no physical limitations; and,

rate their health 25pct higher on a 5-point Likert self-assessment scale than the average 18-34 y.o. in the HIE eligible population

The likelihood of HIE enrollees being on average at all healthier than the broader population of persons eligible to enroll is very nearly zero; the likelihood of younger enrollees being this much healthier than their age and income matched peers is too small to take seriously

Adverse selection on the HIEs is far more likely than not, which implies significant policy changes in the relatively near term. Feasible options include: allowing greater premium differences based on age, allowing higher out-of-pocket maximums, reducing the scope of benefits, increasing subsidies, increasing penalties, and/or merging the relatively poor HIE risks into an existing risk pool having better average risks

 

 

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

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