Strategic implications: Adverse selection may still be a challenge

In our previous post we announced the release of Milliman’s “Ten strategic considerations of the Supreme Court upholding PPACA.” Moving forward we will highlight each strategic consideration. We start by evaluating how “Adverse selection may still be a challenge”:

Guaranteed issue and community rating make the individual insurance market more accessible to the uninsured, but without an effective individual mandate these reforms create adverse selection. The key word there is effective. If enrolling in a healthcare plan is viewed as optional for U.S. citizens because the penalties have limited teeth, those who consider themselves healthy are less likely to enroll because it may not be in their immediate economic best interest. For pricing to be sustainable, these healthier people must enroll in order to balance out the insurance pool costs and health risk.

Milliman analysis on the effectiveness of the individual mandate indicates that much depends on a person’s household income, age, and family type. As the exchanges come online in 2014, many will be focused on the enrollment to determine how this theoretical underpinning bears out in actuality.

One new wild card: The court’s ruling on Medicaid expansion complicates the adverse selection question, because the decision raises access questions for certain low-income individuals. Which brings us to Consideration #2 [Medicaid expansion just became a far more complex and variable proposition].

For more Milliman perspective on adverse selection and the individual mandate read this Health Reform Briefing Paper and this research report.