It appears that there is a popular backlash against the reforms that HHS wants to conduct in the HIX marketplace outlined in their proposed rules. The following Modern Healthcare article suggests that the overriding issue that the public is concerned about is achieving some kind of stable path for premiums and the elimination of the big swings from one year to the next. HHS, in contrast, is trying to impose some restrictions and uniformity like CMS did in the Medicare Advantage world: regulations around what a provider network can look like, standardized benefit packages (not just actuarial values), and so on. The payer community objects to such restrictions which, they claim, will cause further pricing disruptions to accommodate these new rules. You always have to take these complaints as containing a kernel of truth but you never know how accurate their objections are in proportion to their financial priorities.
Instability of pricing is not going to be overcome in just two or three annual cycles: it is going to require more time. You can look back to 2005 when Part D was introduced to Medicare Advantage (Medicare + Choice then). The first round of pricing is completely based off actuarial guesses using the closest proxy data from some other line of business. By the time pricing has to be submitted for the second cycle, there is not enough claims data to really do good pricing either, so year 2 is just some carbon copy of year 1 plus some actuarial estimate of annual trend applied. Year 3 begins to see some settling out with real data.
The problem in the HIX world, however, in contrast with Medicare Advantage, is the whole zero-sum risk adjustment game underneath it. For year three, there are several ways you can lose money, and I understand that 60% of the HIX plans did just that when you remove risk corridor payments.
- Pricing was too low for the actual risk selection and you lose money on utilization and unit cost of care
- Pricing is too low because the risk adjustment process did not adequately capture the ICD codes and other competing plans did a better job and sucked money away in the final settlement
- Shock claims were more frequent and bigger than expected and the final government reserves for risk corridors were inadequate and recovered only 12.6 cents on the dollar
- Pricing was adequate, risk selection was within reasonable limits, but the expenses involved in doing risk adjustment were matched by competitors and nothing was recovered in the risk adjustment settlement process, leaving the issuer upside down from administrative costs
- In the future, risk corridors are going away, so that will no longer save 60% who lost money
- 100% RADV audits will begin in 2016, introducing a whole new set of math exercises to price into the equation
With these added complexities, achieving some kind of equilibrium in premium pricing is going to take some time to wash these dynamic factors through. In the meanwhile, the question is what tolerance there is in the marketplace for price fluctuations. Certainly with larger premium subsidies for the low income folks, there is less sensitivity to price swings. But those individuals bearing the brunt of these price changes may not want to hang in there while the market corrects itself.
There is some room for optimism, nevertheless. While we saw a large spike in health care cost inflation due to people accessing health care using their new HIX plans, that utilization surge may even out in a couple years as people get established and under control. We saw that with Medicare Advantage where the larger portion of the population got coverage initially and overused it, once they were stable, the future new enrollment waves were diluted by the larger population already taken into care.