With the insurance marketplace open enrollment period coming to an end in February, the U.S. Department of Health and Human Services (HHS) has released new data on the total number of plan selections in the federal health insurance exchange. This information provides high-level information on the distribution of plan selections, split between new and existing exchange consumers, with further insight into the auto-enrollment process and consumer migration between plans. Three observations from this data:
1. Nearly 4.7 million new consumers selected a plan on the federal exchange, representing 53% of total plan selections. For insurers new to exchange markets in 2015, or priced more competitively relative to 2014, the high proportion of new consumers provides the opportunity for significant market share gains. If 2014 experience is an indication, consumers entering the exchange market will gravitate toward the lowest-cost plans. This is supported by emerging evidence of new market entrants and existing insurers (pricing more competitively in 2015) gaining market share. On a long-term basis, the individual market may experience a high degree of churn in its consumer base, which is due to changes in a consumer’s eligibility for Medicaid or affordable employer-sponsored health insurance that impact eligibility for exchange premium assistance.
2. The majority of existing exchange consumers elected to renew 2014 coverage. A major question going into the 2015 open enrollment period was the degree to which exchange consumers would shop for new coverage in 2015. More than 70% of existing 2014 exchange consumers, approximately 3 million individuals, elected to remain in the same plan for 2015. Although we do not have state- or insurer-level data, this likely has resulted in 2014 market leaders maintaining a large portion of their membership bases. Analysis of enrollment data from first quarter 2015 financial statements and changes in the insurer’s relative price position (RPP) in the exchange from 2014 to 2015 will provide better indication of the price elasticity of exchange consumers at the state level.
3. A large majority of consumers renewing their 2014 plans relied on the auto-enrollment process, increasing the likelihood of net premium increases in 2015. Despite strong encouragement by several journalists and HHS, only 34% of consumers renewing coverage for their 2014 plans elected to go through the active enrollment process. For these consumers, monthly premium assistance amounts for 2015 were recalculated based on their household incomes, ages, and their plans’ 2015 RPPs to the 2015 subsidy benchmark plan. For the remaining 66% of consumers who renewed coverage, monthly advanced premium assistance amounts in 2015 will be equal to 2014 amounts. To quantify the impact to consumers of auto-enrolling versus actively renewing their 2014 coverage, we examined cost differences for consumers who purchased the subsidy-benchmark plan in 2014. As illustrated in the figure below, consumers who purchased the 2014 subsidy benchmark plan and elected to forgo the active enrollment process increase their likelihood of monthly cost increases. For example, based on the distribution of county-level 2014 plan selections in the federal exchange, 79% of 60-year-olds would experience net cost increases of greater than $50 if auto-enrolled, while only 35% who elected to actively renew their 2014 plans would experience such increases.
While 2014 market leaders may have had a large portion of their membership bases renew coverage, a material portion of the membership base may have higher monthly costs in 2015 relative to 2014. This may result in 2015 persistency rates being much different than experienced in 2014.
New information from the U.S. Department of Health and Human Services allows for further evaluation of the federal exchange auto-enrollment process, including the cost implications for consumers of auto-enrollment versus redetermination. For 2014 consumers, there are several key issues to consider when making purchasing decisions for 2015. And for insurers, the federal auto-enrollment period creates a number of interesting marketing dynamics.
This healthcare reform briefing paper authored by Milliman’s Jason Clarkson, William Gibula, and Paul Houchens discusses the potential impacts to the 2015 federal exchange market as a result of the federal auto-enrollment process and examines the effects that proposed 2017 changes to the process may have on insurers and consumers.
In 2014, Milliman published a range of articles and videos, covering issues including retirement ideas for Millennials, the pros and cons of catastrophe models, the value of enterprise risk management (ERM) programs, and the impact of the Patient Protection and Affordable Care Act (ACA) on financial statements. We also published on challenges related to healthcare costs and insurance and risk management issues—and about real insurance for fantasy football and insurance for ride sharing. To view this year’s 10 most viewed articles and reports, click here.
Milliman consultants had another prolific publishing year in 2014, with blog topics ranging from healthcare reform to HATFA. As 2014 comes to a close, we’ve highlighted Milliman’s top 20 blogs for 2014 based on total page views.
20. Mike Williams and Stephanie Noonan’s blog, “Four things employers should know when evaluating private health exchanges,” can help employers determine whether a PHE makes sense for them.
19. Kevin Skow discusses savings tools that can help employees prepare for retirement in his blog “Retirement readiness: How long will you live in retirement? Want to bet on it?”
18. The Benefits Alert entitled “Revised mortality assumptions issued for pension plans,” published by Milliman’s Employee Benefit Research Group, provides pension plan sponsors actuarial perspective on the Society of Actuaries’ revised mortality tables.
17. In her blog, “PBGC variable rate premium: Should plans make the switch?,” Milliman’s Maria Moliterno provides examples of how consultants can estimate variable rate premiums using either the standard premium funding target or the alternative premium funding target for 2014 and 2015 plan years.
16. Milliman’s infographic “The boomerang generation’s retirement planning” features 12 tips Millennials should consider when developing their retirement strategy.
15. “Young uninsureds ask, ‘Do I feel lucky?’” examines the dilemma young consumers face when deciding to purchase insurance on the health exchange or go uninsured.
14. Last year’s #1 blog, “Retiring early under ACA: An unexpected outcome for employers?,” is still going strong. The blog authored by Jeff Bradley discusses the impact that the Patient Protection and Affordable Care Act could have on early retirees.
13. Genny Sedgwick’s “Fee leveling in DC plans: Disclosure is just the beginning” blog also made our list for the second consecutive year. Genny explains how different fee assessment methodologies, when used with a strategy to normalize revenue sharing among participant accounts, can significantly modify the impact of plan fees in participant accounts.
12. Doug Conkel discusses how the Supreme Court’s decision to rule on Tibble vs. Edison may impact defined contribution plans in his blog “Tibble vs. Edison: What will it mean for plan sponsors and fiduciaries?”
11. In her blog “Retirement plan leakage and retirement readiness,” Kara Tedesco discusses some problems created by the outflow of retirement savings. She also provides perspective on how employers can help employees keep money in their plans.
The federal health exchange’s automatic reenrollment process was intended to simplify renewing policies. However, auto enrollment could also introduce unpredictability for insurers. This New York Times article examines how these issues will impact the exchange and quotes Paul Houchens offering some perspective in regards to the financial implications.
Here’s an excerpt:
Automatically renewing marketplace plans will be a mistake for many people, but it is an especially risky one for the 85 percent of people who qualified for some sort of subsidy. The Obama administration has chosen not to recalculate the value of tax credits for people who don’t return to the Healthcare.gov site.
If your subsidy should go down – either because you have received a raise since last year or because the benchmark plan in the market became cheaper – you could end up owing the government a lot more money than you think, and you won’t find out until tax time.
…Not everyone has to worry about these invisible price changes, especially if incomes haven’t changed. But in markets where federal rules apply and the benchmark is going down a lot, it pays to return to the marketplace before renewing. Places where that will be an issue include parts of Georgia, Indiana and Ohio – where benchmark prices are declining by more than 15 percent. For people in those areas, returning to the marketplace could prevent a surprise tax bill.
“The structure makes for a very competitive environment among the insurance carriers,” said Paul Houchens, an actuary at Milliman, who estimates that, in some cases, what looks like a 5 percent premium rise could actually mean an increase of more than 30 percent. “But,” he said, “I can see how it would create more confusion for consumers.”
To understand how the reenrollment process will affect premiums and potentially create financial barriers to coverage in 2015, read this healthcare reform paper.
The U.S. Department of Health and Human Services (HHS) has proposed, for the federal health exchange, that the majority of policyholders receiving premium subsidy assistance will be automatically reenrolled in the same plan unless they elect otherwise during the 2015 open enrollment period. State-run exchanges may follow this guidance but also have the option of requiring consumers to reenroll through the exchange or proposing an alternative reenrollment methodology. Approximately 83% of enrollees on the exchanges receive federal subsidies. Policyholders who are automatically reenrolled will receive the same dollar-amount subsidy for 2015 as they did in 2014. In most cases, this will be less than the advanced subsidy that would be applicable if the policyholder enrolls through the exchange in 2015 through the “redetermination” process.
The proposed federal exchange auto-enrollment process only impacts a policyholder’s net premium contribution—total premium less Advanced Premium Tax Credit (APTC)—prior to the reconciliation process. Regardless of how a policyholder enrolls in a plan in 2015, the final premium subsidy will be reconciled with enrollees’ 2015 tax returns to ensure consistency with the prescribed subsidy formula of the Patient Protection and Affordable Care Act (ACA).
This Milliman healthcare reform briefing paper by Paul Houchens and Susan Pantely summarizes the potential implications for policyholders and insurance companies related to changes in federal subsidies and the renewal process.