Beware the sophomore slump

All the trends are positive as the insurance industry, the government and healthcare reform advocates gear up for the second year of open enrollment on the federal and state-run insurance exchanges. Competition is up. Price increases are modest. And politicians who thought they could ride Obamacare attack ads to election victory are finding most voters have moved on.

But insurers, providers, navigators and advocacy groups that are working overtime to sign up the next batch of the uninsured will face a far more difficult challenge this fall and winter than they did in year one when 7.3 million paying customers bought health plans on the exchanges after their rocky rollout. While the Obama administration refuses to set goals, the Congressional Budget Office originally projected 13 million previously uninsured people would obtain coverage by the end of year two. That is a reasonable target for the upcoming enrollment season.

Many who initially took advantage of the opportunity to obtain subsidized insurance had pre-existing medical conditions or had been penalized financially by the previous overpriced and underinsured individual insurance market. The millennials who signed up—early estimates pegged the 18-to-34 age demographic as slightly more than a quarter of all new enrollees—were those who responded well to a message that emphasized social insurance works only when everybody is in the pool.

But the first-year results lagged among key demographic groups. Surveys show women, who have greater healthcare needs, represented 54% of those who signed up, even though men represented 55% of the uninsured. The 45-year-old overweight smoker in a low-wage job who doesn't think he needs anyone's help will be far harder to convince—even with an individual penalty—than the college-educated, mountain-hiking invincible who voted for President Barack Obama.

Hispanics, who represented 36% of the uninsured prior to reform, still make up nearly a quarter of the uninsured, according to a July Commonwealth Fund survey. Even in California, which waged a major push to sign up its huge uninsured Latino population (63% of all the uninsured), only 28% of new enrollees were Hispanic. While undocumented residents are not eligible for exchange coverage, the Obama administration's failure to push through immigration reform did not send a positive signal to the broader Latino community about their eligibility for government programs.

On the positive side, the insurance industry has risen to the challenge. HHS Secretary Sylvia Mathews Burwell reported last week that there will be a 25% increase in the number of insurers participating in the exchanges. New Hampshire, for example, which had only one insurer on its exchange last year, will now have five insurers offering plans.

Only California saw reduced insurer participation. But a drop from 12 to 10 carriers on its exchange doesn't suggest disenchantment, but rather that weaker players are dropping out of a very competitive market. UnitedHealthcare, the nation's largest insurer, plans to double its exchange participation in 2015.

Rising rates could deter many customers, though. Earlier this month, a McKinsey & Co. review of preliminary and approved rates in 19 states, representing nearly half the eligible population, showed an average 8% increase in the lowest-priced silver plan. But, as with everything related to healthcare, it all depends on where you live. Fully 28% of silver plans showed a 10% or more rate increase, while 14% had a 10% or more decrease. For the 70% of subsidy-eligible participants, that represents an average annual increase of $156 in premiums.

While some of that will be offset by increased subsidies, many consumers who bought plans in year one will be seeing a rate increase when they go to re-enroll in their plan in year two. That inevitably will drive some price-sensitive purchasers away. And those who used their low-priced bronze or silver plans in the first year only to discover they still had to pay high deductibles and coinsurance may drop out.

Automatic re-enrollment for those who signed up last year can't be taken for granted.

And then there's simply the confusion factor. Burwell, like her predecessor, has assured the public the application process will be more streamlined and the HealthCare.gov website will operate smoothly. Let's hope so. Every glitch will be magnified as the drive to sign up the uninsured moves into the harder-to-reach depths of the pool.

Follow Merrill Goozner on Twitter: @MHgoozner