The health insurance market instability brought about by premium increases and issuers withdrawing from the marketplace were a direct result of expensive claims and the implementation of federal policies that reduced funding and hamstrung issuers’ ability to adjust pricing.
Health plan issuers’ participation in health insurance exchanges, as well as premium levels and plan design, were largely influenced by high claims costs. The Government Accountability Office (GAO) found that issuers’ decisions were also influenced by policy changes, such as phasing out of programs that mitigated risk and covered certain cost-sharing payments. Issuers believed that federal and state policies would continue to have a particular effect on premium changes (GAO Report, GAO-19-215, January 28, 2019).
Market stability. The GAO examined issuers’ experiences participating in the individual market exchanges to better understand the factors that affect stability. In recent years, issuers have left the market, certain regions have been at risk of not having any coverage options, and premium rates have increased drastically. The GAO found that claims costs in 2014 and 2015 were higher than expected, with some issuers seeing claims nearly identical to premiums or much higher than premiums. The inaccurate projections were attributed to a lack of historical data to support actuarial assumptions under requirements that prevented denial of coverage or increased premiums due to health status.
Enrollees were sicker than expected, with higher rates of diseases such as hypertension, human immunodeficiency virus, hepatitis C, and end stage renal disease. Enrollees also used more services than expected, with inpatient stays 30 percent longer than expected and outpatient visits 40 percent higher than expected. In addition, the services used cost more than projected.
Policies. Some issuers believed that special enrollment periods were misused, such as consumers seeking care for short-term, urgent medical needs, resulting in higher than projected claims. The use of transitional plans, which allowed healthy consumers to maintain coverage without purchasing plans through the exchanges, resulted in higher than average claims costs for qualified health plans (QHPs) on the exchanges in the beginning years. This decision to allow transitional plans to remain in effect was also made after rates were established for 2014, so issuers could not adjust rates to reflect the sicker risk pool. These policies caused many (but not all) issuers to experience heavy losses in the early years of the exchanges, with financial performance improving overall in 2017.
Premiums generally increased every year since the creation of the exchanges, although the amount of increases varied across issuers. The phase out of federal reinsurance and risk corridor programs caused issuers to raise premiums for 2017, and the loss of cost-sharing reduction payments resulted in another increase in 2018. Consumers most likely to be affected by premium increases would be those who did not qualify for premium tax credits, and issuers predicted that some of these consumers would leave the exchange market.
ReportsLetters: GAOReports CostSharingNews EnrollmentNews HealthInsuranceExchangeNews PremiumNews PremiumTaxNews
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