Mandate delay could leave insurers without balance of sick, healthy subscribers

As technological problems continue to plague the federal HealthCare.gov website a month after its launch, political calls for delaying a key feature of the Patient Protection and Affordable Care Act have grown louder, and that has insurers worried.

Particularly troubling for the Obama administration and the insurance industry is the emergence of Democrats seeking to put off financial penalties for Americans who don't obtain health insurance by March 31, the extended deadline recently set by the administration. Last Wednesday, nine House Democrats introduced legislation that would put off the mandate until at least 90 days after HealthCare.gov has been deemed functional by HHS' inspector general's office. Many Republicans in the House and Senate have demanded a one-year delay.

That prospect is worrisome for the insurers offering health plans on the state- and federally run insurance exchanges. If the mandate is delayed, experts say, insurers could end up with a sicker pool of subscribers. That's because the financial penalty for failing to acquire coverage—$95 or 1% of income in 2014, whichever is higher—is believed to be key to drawing younger, healthier individuals into the exchanges. Even before talk of delaying the mandate gathered momentum, there were widespread fears that the fine would be insufficient to create a diverse customer mix and keep premiums low.

Most insurers have tempered investor expectations for 2014 owing to the uncertainty over the reform rollout. Third-quarter earnings reports have been mixed for the major publicly traded insurers. UnitedHealth Group has seen its stock tumble after failing to meet analysts' expectations. Similarly, Aetna failed to reach profit projections for the quarter. But Cigna Corp. reported more robust profits than expected, based in large part on increasing its share of the Medicare Advantage market, and WellPoint raised its profit forecast for 2013. Humana will release its third-quarter earnings report Wednesday.

“If these vital enrollment incentives were to change, the premiums health plans filed for next year would have to increase to account for fewer young and healthy people signing up for coverage,” America's Health Insurance Plans said in a written statement. “Extending the open-enrollment period could also cause significant uncertainly and instability in 2015 premium rates as health plans would have to start submitting premiums to regulators before knowing who is enrolled in their insurance plans.”

“The insurance industry would be concerned about what the delay means for the mix of people,” said Joel Michaels, an attorney with the law firm of McDermott Will & Emery who consults with insurance firms. “If the healthy people don't have any financial incentive, if that is now deferred for an entire year, what will that do to the mix?”

Cori Uccello, senior health fellow at the American Academy of Actuaries, agreed that any delay in the individual mandate likely would raise premiums in the long run. Uccello noted that insurers can't raise prices to cover losses in 2014, but they can alter their actuarial assumptions when they set rates for 2015 and beyond.

Even some seemingly minor tweaks to the ACA, such as extending the open-enrollment period for a few weeks or months beyond March 31, could have financial consequences for insurers. If technological problems with the federal exchange serving 36 states and with some of the state-run exchanges continue much longer, that makes it less likely that younger, healthier individuals will sign up for coverage effective Jan. 1. Having healthier people enroll partway into 2014 could hurt insurers' financially by depriving them of better risks to balance out their sicker members.

In addition, insurers will need to begin determining their rates for 2015 soon after the March 31 deadline closes. If the deadline is extended again, they will have problems gauging the makeup of the market.

Supporters of the ACA point to the experience of Massachusetts as evidence that slow enrollment at the start does not mean healthcare reform will fail. Massachusetts' reform law is widely considered a success despite having just 123 people sign up in the first month. “What matters is that it will ramp up over time,” said Jonathan Gruber, an economics professor at the Massachusetts Institute of Technology who consulted in the drafting of both the Massachusetts and federal laws. “That same kind of outcome will happen at the national level.”

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