Net HIE Premiums Growing Faster Than Incomes; This is Likely to Accelerate

Richard

The average premium increase thus far proposed by health insurance exchange (HIE) plans for 2015 is 10%; this compares to 4% to 5% expected income growth for subsidy eligible households

We encounter a common misperception that the Affordable Care Act (ACA) keeps households’ net premiums constant as a percent of income. In reality, the first of two health insurance subsidy indexing provisions – ‘regular’ indexing – keeps households’ share of premiums constant, until and unless the second indexing provision (‘additional’ indexing) applies. Thus beginning in 2015 households should expect their net premiums to rise (at least) at the rate of overall premium inflation

Additional indexing applies in 2019 and after if total federal premium (and cost-sharing) subsidies paid exceed 0.504 percent of GDP, as is likely. Additional indexing serves to keep total federal premium and cost-sharing subsidies at or near this percent of GDP, in which case households purchasing subsidized health insurance on the HIEs will see their net premiums grow even faster than the underlying rate of premium inflation

Most current beneficiaries will have enrolled at a point in time at which their exchange could not offer a great deal of information regarding the nature of the coverage they were purchasing – other than the price. As beneficiaries have begun to gain experience with their coverage, we believe many will be disappointed by features such as narrow networks and high levels of cost-sharing. In effect, we believe beneficiaries’ (and potential beneficiaries’) assessment of the value of coverage may be falling, just as the cost of coverage (as a percent of incomes) begins rising. This feeds our conviction that the HIEs are subject to adverse selection pressures that will force policy changes, and leads us to believe that enrollment growth in 2015 may be limited

For the HIEs to succeed (both in terms of avoiding adverse selection and enrolling sufficient numbers of persons to meaningfully reduce the ranks of the uninsured), we believe at least one or more of the following policy steps will be taken: (re-)allowing greater premium differences based on age, (re-) allowing higher out-of-pocket maximums, reducing the scope of mandatory benefits, increasing subsidies, increasing penalties, and/or forcing the merger of adverse HIE risk pools into larger, better balanced risk pools

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

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