Overhaul website problems may trigger price hikes
Problems with the government's main health care
overhaul website carry a bigger risk than frequent crashes: Higher prices could
follow for many Americans if technical troubles scare off young people.
The government has touted recent improvements to
HeathCare.gov, which millions of Americans are expected to use to sign up for
coverage. But enrollment still lags far behind projections, and that has
triggered worries that legions of potential customers in their 20s and 30s might
not sign up. If that happens — and older, sicker people continue to register in
larger numbers — insurers might have to raise future prices to address the
imbalance.
Although the chance of an age imbalance has loomed
since the health care overhaul became law in 2009, it has become more worrisome
since the website made its glitch-plagued debut in October.
Aetna Chairman and CEO Mark Bertolini said then that it
was "incredibly important" to get the site running properly because "younger,
healthier people aren't going to give them more than one shot."
Americans have until Monday to sign up for coverage
that starts Jan. 1, and many are expected to wait until the last minute. They
have until March 31 to find coverage and avoid a penalty for being uninsured
next year.
Insurers need younger, healthier people to essentially
subsidize the coverage they give older customers due to limits placed on the
insurers by the overhaul. Americans in their 60s generally use about $5 in
health care for every $1 used by those in their 20s, but the law limits insurers
to collecting $3 in premiums from that 60-year-old for every $1 they collect
from a 20-something.
On average, that means an older customer's premiums
won't fully cover their medical expenses, while the opposite happens for younger
customers.
Insurers factored that in when they began planning for
the overhaul. They set rates based in part on the number of customers they
expected to enroll who were above and below age 45. Even a small shift in the
balance between those two groups can hurt an insurer if it comes after the
company has set prices.
For every 10 percent decline in the younger population,
an insurer's cost for care could rise by 1 percent, said Dave Axene, a fellow of
the Society of Actuaries who helped insurers set prices for the overhaul's
insurance exchanges in several states. If the older population also winds up
bigger than expected, then costs could rise even more, depending on how other
variables play out.
"Just a little shift in this ... all of a sudden you're
caught with a serious problem," Axene said, noting the hikes will eat away at
profitability, and many insurers were only expecting profit margins of 2 to 4
percent from business they get on the exchanges.
Insurers who wind up with a smaller profit or
older-than-expected population in 2014 may be compelled to raise rates when they
set prices for 2015. "These companies are not participating in these markets out
of benevolence," said Jennifer Lynch, an analyst who follows health insurers for
BMO Capital Markets.
Whether premiums change due to an age imbalance remains
to be seen, in part because people are still signing up for coverage.
Insurers and the state-based insurance exchanges that
are central to covering uninsured people under the law have stepped up their
marketing to young adults as enrollment deadlines draw near. California's state
exchange, for instance, is encouraging people to pledge to help get a young
adult covered.
Young, healthy customers have some strong incentives to
enroll, starting with tax penalties for those who remain uninsured. They also
could qualify for income-based tax credits or subsidies that help them pay for
coverage. "The health care law is making health insurance more affordable for
young adults," said Joanne Peters, a spokeswoman for the U.S. Department of
Health and Human Services.
If younger adults stay away and enrollment remains
biased toward the older adults, insures may only hike future premiums by a
couple percentage points, said Gary Claxton, a vice president with the Kaiser
Family Foundation, a nonprofit that studies health care issues. He noted that
companies can still vary their prices based on age, just not as much as they
used to.
But insurers note that such an increase would be added
to other cost hikes due to things like the rising cost of care.
The hit an insurer takes and the impact on future
prices also may depend on how it approached the exchanges. Companies that saw
them as a "land grab" for new customers and entered with low prices to attract
as many people as possible may suffer a bigger blow than those that acted more
conservatively, Lynch said.
The overhaul builds in safeguards to protect insurers
during their first few years on the exchanges, when the new system is taking
shape. A reinsurance fund will help insurers pay high claims, and another
provision will help make up some of the difference in markets where an insurer's
expenses exceed the premiums it collects.
Still, Axene and others say these programs will ease
but not erase the impact of an insured population that skews older than an
insurer expected.
"Those are important programs," said Robert Zirkelbach,
a spokesman for the industry trade group America's Health Insurance Plans. "But
that doesn't change the fact that if the young, healthy people chose not to
participate, there still will be an impact on premiums."
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