Evidence of Rate Shock on the Individual HIEs: Weak at Best


In 8 of the 10 states for which we have useful data, today’s (2013) premiums for individual coverage are (after being inflated by 6 pct to account for 2013 – ’14 health cost growth) very much on par with 2014 premiums for individual coverage offered on the health insurance exchanges (HIEs). More specifically, in these 8 states 2013 premiums (adjusted for 6 pct health cost inflation) are roughly equivalent to the cost of bronze or silver coverage in 2014

In only 2 of the 10 states (Montana and Colorado) is there even partial evidence of significant premium inflation in 2014 relative to 2013. In Montana the cost of bronze coverage for a 25-y.o. is roughly 19 pct higher than the 2013 basis, and the cost of bronze coverage for a 60-y.o. is approximately 15 pct higher than the 2013 basis. For 40-y.o.’s in Montana, bronze coverage is actually 9 pct cheaper than the 2013 basis. In Colorado, as yet we only have data for 40-y.o.’s, where bronze coverage is approximately 27 pct more expensive than the 2013 basis

Thus far, the river of data pouring out of states’ efforts to launch HIEs supports two conclusions: 1) the supply-side of the market appears healthy (there are plenty of underwriters offering plenty of options); and 2) after modest assumptions for underlying health cost inflation, 2014 premiums for individual coverage shouldn’t be awfully different from 2013 premiums

Accordingly, whether the HIEs succeed depends on the demand side of the market – i.e. on whether the currently uninsured seek coverage in large numbers. We continue to believe demand will be limited, and that adverse selection will be a key result, forcing further reforms

Ultimately the market for individually-purchased coverage is a small percentage of the commercial market (currently a little more than 6 pct, and growing to at most 7 ½ to 8 pct in the next five years), where the more important questions are: 1) whether the large national account-oriented underwriters can maintain their overall enrollment shares as employer-sponsored beneficiaries move to private exchanges (where they can for the first time buy local plans); and 2) whether average contract values begin to fall rapidly as employer sponsored beneficiaries are offered wider ranges of coverage ‘generosities’ (including less generous plans than have previously been offered). Our expectation is that the larger commercial insurers (e.g. UNH, WLP, CI, AET) ultimately will lose enrollment share and see average contract values fall

In contrast, we see enrollment gains and rising average contract values for the Medicaid HMOs (especially CNC, MGLN, and WCG), which we strongly prefer over their commercially-oriented peers

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

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