Insurers struggle to calculate rates as enrollment nears end

When open enrollment in the insurance exchanges closes March 31 for most Americans, insurers will be scrambling to evaluate their new membership, assess the Obama administration's latest rules, guess at their competitors' strategies—and decide on exchange plan premiums and their choice of markets for 2015.

In some states, insurers must file their proposed 2015 rates as soon as May 1, while in the 36 states relying on the federal HealthCare.gov exchange they have until June 27. That already-tight timetable was made even tighter last week when the administration extended open enrollment for consumers who attest that they tried to but could not enroll because of a range of factors beyond their control.

Insurers' short turnaround time, coupled with regulatory uncertainties, has led some industry officials and outside experts to predict that double-digit rate hikes could be in the works. That would be bad news for consumers, the administration and Democrats running for election in November. The fear is that if premiums rise significantly, fewer healthy but uninsured Americans will sign up in 2015, leading to more rate hikes. Still, many observers say the exchange market would survive rate increases because the law's re-insurance and risk-adjustment mechanisms protect plans with higher-than-expected costs.

“There will undoubtedly be remarkable price increases,” WellPoint CEO Joseph Swedish said. He added that the prospect of double-digit hikes “appears as if it's likely,” but he was uncertain about specific numbers. His company—the biggest commercial insurer in the exchanges, with 500,000 members as of the end of January—will study the demographics and medical utilization of its new members to figure that out.

Swedish's uncertainty is shared by many observers, though not all predict such big increases. Those warnings are tempered by relatively moderate medical cost growth, insurers' upbeat comments about enrollment and President Barack Obama's announcement Thursday that the administration had met the goal of 6 million private-plan sign-ups under the Affordable Care Act.

Swedish said the demographic mix of his company's new enrollees “has turned out how we expected.” Another WellPoint executive told investors earlier this month that he was “very optimistic as to where we are” on the exchanges. The company also has upped its estimate of how many new customers have made their first premium payments on time, from 80% to 90% in recent weeks.

Given such comments, some analysts expressed surprise about predicted double-digit hikes. They say WellPoint and other insurers may simply be playing it safe by planning bigger increases and are preparing the public for the likely rate shock.

Still, there's no question insurers are nervous about the extension of the open-enrollment period. They fear people might wait until they need medical care to sign up. On the other hand, the extension might benefit insurers because late enrollees likely will be younger people who simply procrastinated, said Ceci Connolly, the leader of PricewaterhouseCoopers' Health Research Institute.

The risk-pool composition is a big question mark, though that likely will vary in each state's market. And the rate impact will depend on what model each insurer used to calculate 2014 premiums. At a March 11 investor event, Humana CEO Bruce Broussard said “utilization is not out of line with what we expected.” Aetna's CEO, Mark Bertolini, said at a March 11 event that “our view is that the demographics are skewing older. We don't know if that's sicker.”

Bertolini said he's wary about new CMS rules, including a proposal to closely examine the adequacy of plans' provider networks. If his company still has a lot of uncertainty by the end of April, it will have to propose higher 2015 rates to protect itself, he warned.

Connolly said insurers likely were just below their preferred percentage of younger subscribers. But, she added, new customers who have signed up for individual-market plans outside the exchanges are a wild card that could balance that out, since some think healthier and wealthier people may be enrolling in plans outside the exchanges.

Another consideration for insurers is the three-year phase-out of re-insurance and risk-corridor protections established under the ACA, said Hans Leida, a consulting actuary with Milliman. The phase-out of re-insurance would contribute about 6% to 12% in rate increases alone, spread out over the next few years. The risk-corridor program built in some certainty for insurers on the exchanges by limiting both potential gains and losses.

But the administration's regulatory twists and turns, combined with pressure on Obamacare funding from congressional Republicans, could reduce insurers' support from those protections. “I think insurers are going to be less certain that those safety nets will be there to catch them if they fall,” Leida said. “That may result in insurers being less willing to be aggressive in the market.”

Broussard summed up the atmosphere of insurer uncertainty. “We look at it as a 24-month R&D project,” he told investors. “If it's not sustainable, then we'll make the decision to exit that marketplace.”

Darius Tahir is a freelance writer based in Washington.