Tag Archive: adverse selection

Market dynamics of health benefit exchanges could be profound

Robert Pear writes in today’s New York Times about state health benefit exchanges, a central component of the federal Patient Protection and Affordable Care Act (PPACA).  Featured in Pear’s article are two state insurance exchanges, the Massachusetts Connector and the Utah Health Exchange.  These two states’ exchanges are up and running well ahead of the Jan. 1, 2013 deadline that states must report to the federal Health and Human Services Agency on their progress establishing the exchanges.  The exchanges are to be operational nationwide by Jan. 1, 2014 under the PPACA.

Pear notes “Congress assumed that insurance would also be sold outside the exchange. But federal subsidies, to help pay for insurance, will be available only to people who enroll in health plans through an exchange.”

Going forward, it will be interesting to watch the market dynamics play out between exchange markets and non-exchange markets.  In setting up the exchanges, the PPACA effectively creates a subset of the larger insurance market in the hope that the government-instituted and subsidized subset will gain sufficient purchasing power to obtain coverage on terms and conditions favorable to insureds.  If the exchanges do so with great success, they would control so much of the market that extra-exchange plans would effectively be crowded out of the marketplace.   Particularly if employers opt to pay the $2,000 per employee fine for not providing health coverage to their workers, letting them get individual coverage through the exchanges as Tennessee Gov. Philip Bredensen discusses in a Wall Street Journal op-ed piece last week.

On the other hand, payors might chafe at conditions attached to offering coverage through the exchanges and ramp up their non-exchange plans aimed primarily at healthier people in order to hold down their medical loss ratios.  If that trend accelerates, it could doom the exchanges to adverse selection by leaving them less healthy people the insurers and health plans want to avoid, creating even stronger incentive for payors to shun the exchanges and continue business as usual.  Finally, if medical treatment costs continue to rise at their current clip, premium rates for all plans will grow increasingly out of reach — even for those subsidized through the exchange.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Academicians question “adverse deselection” in individual market

A post at the journal Health Affairs blog questions what I’ve termed “adverse deselection” —  when healthier people in the individual market decide to take their chances and drop their coverage to save premium dollars in the current economic downturn.  In California, Anthem Blue Cross contends the flight of these better risks left it with costlier insureds in its risk pool — what’s classically known as adverse selection — thus necessitating sharp rate increases to cover higher dollar claims brought by sicker individuals.  The theory is these folks will suck it up and pay the higher premiums in order to stay insured, knowing both that they’ll likely need medical care in the future and that they can’t shop around for lower premiums because no other insurers are likely to accept them due to their preexisting medical conditions.

Jonathan Kolstad, assistant professor of health care management at The Wharton School and Leonard D. Schaeffer of the University of Southern California’s Center for Health Policy and Economics, claim to have developed data casting doubt on that scenario.  “There is little evidence of a change in composition and size of the non-group insurance market between 2007, prior to the recession, and March of 2009, near the bottom of the recession,” they conclude.

Initially, I thought regardless of whether those dropping their coverage are healthy or not, the recession has likely shrunk the individual market.  Those who need medical services still have to pay the premium to keep their coverage in force.  And when comes down to paying the mortgage or a monthly health insurance premium that in many cases nearly equals the mortgage payment, it’s the latter that’s likely to go unpaid.  But consider another study issued this week by the UCLA Center for Health Policy Research projects California’s individual market actually grew during the recession, covering 8.5 percent of non elderly adult Californians at its start in 2007 to a projected 9.1 percent in 2009.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

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