What Happens if They Don’t Come?

As the storm continues to gather around the healthcare exchange’s troubles, the news media is beginning to fixate on a new question: What happens if the young and healthy don’t come? At what date have Healthcare.gov and the state exchanges lost the young invincibles that are the key the law’s long term success? Won’t health care reform be doomed when Healthcare.gov crashes on black Friday?

Don’t panic!

The US healthcare system has been compared to a gigantic mega-tanker and that analogy is particularly apt in this case. The exchanges early floundering will certainly impact the course of health insurance rates. However unlike a modern tanker, health insurance carriers don’t have a GPS to pinpoint the course change but are still using tools closer to compasses and half completed current charts.

The key current that health insurance carriers are concerned with navigating is the risk pool or how much health care is consumed by the insured members. The less health care that is consumed per capita the cheaper the rates and the easier it is convince healthy people to purchase insurance creating a virtuous cycle. The cycle can be reversed however where the costs per capita are higher than expected leading to higher rates which leads healthier individuals to see less value in the coverage and drop coverage.

The initial navigational tool surrounding risk pools that is causing such distress is the low number of enrollments across the country. First it’s important to note that a true “enrollment” means that the individual has already paid for the January premium. This fact alone may limit the number of enrollments until mid to late December. Exchanges may also be reporting submitted applications where an individual has selected a plan and their information has been transmitted to the carriers. These applications are a necessary precursor to formal enrollment and inclusion in the risk pool but because they don’t include the initial premium payment, applications will always be higher than enrollments.

Enrollment numbers also give imprecise view of the actual risk pool. The key driver of the quality of a risk pool is not the demographic information but the health status of the members. In general a 25 year will be healthier and have fewer claims than a 50 year old but the risk pool is driven by the actual healthcare claims of the members. It does like good if all of the young asthmatics and diabetics enroll but the 50 yeas with The actual health status of the Exchange and the individual market more broadly won’t be captured for several months until carriers start to see how their members engage with the health system.

The demographic markers will also move over the course of the year.  The current individual health insurance market sees tremendous turnover and churn.  Even in states with guaranteed renewability like Colorado, were rates can’t change based on claims and the insurance can’t be canceled, having 30% people leave the plan with in year is not uncommon. It is quite possible that the demographics can look good at the beginning of the year but if the healthy decide to drop mid year, the yearlong risk pool can diverge from the initially promising demographic risk pool.

When could a carrier start to make the first course correction if the demographic winds seem against them? Unless the schedule changes dramatically, health carriers will develop rates for 2015 next spring just as some the demographic information from open enrollment becomes available but health status is largely a mystery. One of the key comparisons that will be available as to whether rates whether the demographic profile is close to the carrier’s expected demographic profile, which may not have been as rosy as that of activists and journalists. Similar profiles are but based on the age slope mandated by HHS in the average age of a few years is unlikely to have a large impact on rates.

Fundamentally, the health of the overall risk pool of the Exchanges is one of the most powerful currents driving health insurance reform. However, like a current it’s force is felt over time and silently carries ships forward even though wind and waves may appear to have a bigger impact. The waves crashing around healthcare.gov will certainly have an impact on the course of the healthcare system tanker. But just as storm can feel horrible without fundamentally changing the course of the ship, present difficulties may seem dramatic but actual represent a transient adjustment along the broader voyage.

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