Tag Archives: Strategic implications

Strategic implications: Rate review scrutiny and no risk selection: Something’s got to give

Next in our “Ten strategic considerations of the Supreme Court upholding PPACA” blog series we discuss the challenges insurers face as they balance the removal of traditional cost-control mechanisms and increased rate review scrutiny.

PPACA has brought about increased scrutiny of rate increases, and it seems likely this will continue. But with a 10% increase now deemed potentially “unreasonable” by federal regulators, and with traditional underwriting/risk selection taken out of the system, there are all the signs of an inevitable collision. An influx of less-healthy people could make it very difficult for many plans to stay below the 10% ceiling without losing money and risking financial instability. If the individual mandate works as hoped, this may be mitigated. Risk adjustment, reinsurance, and risk corridors are also supposed to help with this issue, but will they be enough? This is one to watch.

Want more information? Here are good resources about risk adjustment and reinsurance.