One of the major reforms of the individual health insurance market segment put in place by the Patient Protection and Affordable Care Act is pooling people into statewide risk pools to achieve greater spread of risk. In addition, the law reinforces the fundamental insurance principle of risk spreading by creating incentives for people to get into the pool. Those include advance tax credit premium and reduced cost sharing subsidies for individual plans offered on state health benefit exchanges and tax penalties applied to everyone not covered under some minimum form of coverage for hospital and physician care. Also, requiring health plans to accept all applicants for coverage regardless of medical history.
The goal is to restore what was a struggling market segment circling the drain of runaway adverse selection prior to the reforms going into effect in 2014. Few might have thought such a sweeping overhaul of the market wouldn’t restore it to a healthy, viable segment of the health insurance market. But as the reforms are about to enter their fourth year, it’s unclear whether they will achieve the goal of improved spread of risk. Health plan issuers complain the risk pool is imbalanced with too few young people and too many older and higher utilizing folks. They’ve openly expressed concern that’s driving adverse selection – the very problem the reforms intended to remedy.
Other factors that jeopardize the sustained actuarial viability of the individual market:
- Poor overall population health status and low health education levels (i.e. how to stay healthy, minimize need for medical care), generally increasing utilization and cost trend.
- Inadequate market forces exerting downward pressure on medical costs. The Affordable Care Act includes provisions to shift to value-based medical provider reimbursement reform for Medicare, but not the individual or small group market segments.
- A high level of churn as people’s life situations change, moving them into and out of the individual health insurance market.
Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email