Outlook 2014: Insurers

Insurers will be closely watching the rolling implementation of federal and state insurance exchanges through the coming year, after the initial rocky launch caused mass confusion and hindered enrollment.

In particular, they'll be scrutinizing the demographics and health risk composition of the emerging marketplace. While the Congressional Budget Office projected 7 million would have signed up by the end of open enrollment on March 31, most experts say the key will be whether the risk pool is balanced in terms of younger and healthier people and older and sicker people.

If younger and healthier people don't come into the exchanges in significant numbers by March 31, it could cause premiums to spike for 2015 and endanger the long-term stability of the marketplace. Insurers will have to do a rapid actuarial analysis to set their 2015 premiums by the end of May. They'll also need to determine whether they're going to expand or contract their exchange participation.

See a slideshow of the people to watch in 2014

Insurers also will be warily watching the political calculations in Washington. If problems persist with the exchanges, pressure will increase to delay the individual mandate as legislators pivot toward the 2014 election season.

If the kinks generally are worked out—and they seemed to be at year's end—insurers are poised to take advantage of a huge expansion in their customer base. “What's not to like about the government saying everybody must have this product and we're going to help people pay for it,” said Joel Ario, managing director at Manatt Health Solutions and former director of HHS' office of health insurance exchanges.

The first hint at how insurers did during the problematic first three months of open enrollment on the exchanges—and how investors will regard their prospects—comes on Jan. 16 when UnitedHealth Group details its fourth-quarter finances. Observers are also watching to see how the 80 new entrants to the individual and small group markets fare in 2014.

Experts also anticipate that more employers will buy coverage for their employees through private insurance exchanges offering multiple plan options, similar to the public exchanges. In this arrangement, firms give their employees a fixed contribution and let them choose an insurer and a plan.

Insurers are banking on continued growth in the Medicare Advantage program. More than a quarter of all Medicare enrollees are now in private plans, and roughly 40% of new Medicare beneficiaries are choosing Advantage rather than traditional Medicare. Insurance consultant John Gorman expects the number of individuals enrolled in private Medicare plans to grow by 8% to 10% annually for the foreseeable future.

Follow Paul Demko on Twitter: @MHPDemko