SummaryThe third annual open enrollment period for exchanges will kick off on November 1. As patients and the healthcare industry prepare for the 2016 plan year, below are critical questions for the future of exchanges:
Will exchange enrollment continue to grow? Earlier this month, HHS Secretary Burwell announced the administration is projecting exchange enrollment will settle around 10 million people by the end 2016. In late June, HHS revealed 9.9 million individuals were currently enrolled in exchanges nationwide, which is expected to drop below 9.5 million by year-end. Therefore, the Secretary’s projection assumes relatively flat enrollment growth next year, well below CBO predictions that 21 million people would be covered in exchanges by 2016. Looking ahead, exchanges will need to attract higher-income individuals and other harder-to-reach populations, including men and Latinos, to achieve sustainability. Indeed, low 2016 take-up could undermine the fiscal security of state-based exchanges, which can no longer rely on federal funds, and may effect carrier participation over time.
– “The slowdown in enrollment suggests both that gaining participation in exchanges will take more time and that the overall size of the market is likely to be smaller than initially expected,” said Caroline Pearson, senior vice president at Avalere
How many insurers are selling plans on the exchange? In 2015, an average of seven insurers per state offered plans on exchanges nationwide. New carriers entered the market in 33 states. In 2016, insurer participation is likely to continue to grow. Based on complete publicly available filings, at least 14 states have one or more new issuers applying to participate in their exchange market.1 United HealthCare has announced it will expand its exchange participation to 11 more states in 2016.2 Other states will lose issuers in 2016. In particular, Assurant’s exit from exchanges will impact 16 states. At least eight CO-OPs will also leave the market. Nevertheless, overall competition in the exchange market will remain robust in 2016.
– “Carriers continue to see value in investing in the exchange market,” said Dan Mendelson, CEO of Avalere. “In 2016, consumers will once again choose among several competing insurers and between diverse benefit designs.”
What, if anything, do the troubled CO-OPs say about the viability of the exchange market? Recent CO-OP failures fuel speculation about the stability of the exchange market overall. As the industry considers the impact of these exits, it is important to note that CO-OPs were disadvantaged compared to other issuers in the nascent marketplaces. While all insurers struggled to predict the risk profile of exchanges in early years, CO-OPs had little overall pricing experience and no other lines of business to subsidize potential losses. This reality, coupled with the intense pressure to deliver low premiums and smaller-than-expected risk corridor payments, proved too big a challenge. Nonetheless, recent CO-OP exits are unlikely to materially impact the long-term trajectory future of exchanges.
– “The impact of recent CO-OP failures on consumers should not be overestimated,” said Elizabeth Carpenter, vice president at Avalere. “Competition in the exchange market remains robust. The CO-OPs’ exit from the market does not threaten the viability of exchanges more broadly.”
Will the risk corridor shortfall affect the 2016 market? In early October, HHS announced that requests for risk corridor payments in 2014 far outweighed contributions to the program — $2.87 billion vs. $362 million. While the risk corridor announcement certainly played a role in many of the CO-OP struggles described above, it will likely have a minimal effect on the 2016 exchange marketplace. Rates were due to exchanges and departments of insurance in the summer of 2015-long before the recent announcement. Any future payment shortfalls are likely to have the biggest impact on smaller insurers and/or those companies who derive a significant portion of their revenue from the non-group commercial market. Consumers may feel a premium impact in 2017, when the temporary reinsurance program also ends.
– “While risk corridor shortfalls dramatically reduce payments to plans, many carriers had budgeted assuming they would not receive full payouts,” said Dan Mendelson, CEO at Avalere. “Nevertheless, some plans will face challenges as a result of the low payments, which may be reflected in 2017 premiums.”
How much will exchange premiums increase from 2015 to 2016? In 2015, the average premium for the second lowest cost silver plan offered on federal exchanges increased 3 percent over 2014. Yesterday, HHS announced premiums for these same plans would increase by 7.5 percent going into 2016. However, significant geographic variation in premium trends continues to persist. In addition, when evaluating exchange premiums, it is important to remember: 1) most consumers are enrolled in silver plans-this is the metal level that matters to the majority of exchange enrollees, 2) most shoppers who pick silver plans pick one of the two lowest cost options-averages of all silver premiums may not reflect what most patients are experiencing, 3) insurance markets are inherently local-national averages tell us little about what is happening to actual consumers. Regardless of premium increases, enrollees should always return to the exchange to shop for the new plan year to explore how their plan compares to the rest of the market.
– “In most regions, individuals who return to exchanges to shop for coverage will likely be able to keep premium increases low,” said Elizabeth Carpenter, vice president at Avalere. “This is especially true for individuals receiving subsidies, who are largely insulated from rate hikes, depending on the plan they choose.”
Will consumers have new shopping tools in 2016? HHS announced earlier this year that it was preparing to launch new consumer shopping tools for 2016, including provider / formulary search functions and an out-of-pocket calculator. While recent reports indicate that these new features may not be fully functional at the beginning of open enrollment, efforts to improve the transparency and user-friendliness of the exchange shopping experience are critical for patients trying to pick a plan that meets their needs. In particular, a recent poll released by the National Health Council in collaboration with Lake Research Partners found that 36 percent of exchange consumers with chronic diseases found it difficult to find a list of providers, while 34 percent were confused about whether their medications where covered when picking a plan. Eighty-three percent of consumers support a calculator to help estimate the tradeoff between monthly premiums and out-of-pocket costs.
– “Consumers want to pick a plan that best meets their needs,” said Kelly Brantley, director at Avalere. “Improved consumer shopping tools will help patients choose a plan based on factors other than premium, including out-of-pocket costs, network design, and coverage of prescription medications.”