Insurers that have jumped head first into selling plans on multiple health insurance exchanges, either federally or state-run, will likely face three major obstacles, reported Insurance Networking News.
"This is an industry under transformation both because of and in spite of the Affordable Care Act," Scott Donahue, a director with independent merchant bank TripleTree, told Insurance Networking News. "Whichever way the tide breaks, especially around some of these short-term, very public challenges right now, this is an industry that is changing and needs to change, regardless of what the ultimate driver of that change, which is a good thing."
Here's a look at the three challenges TripleTree predicts lie ahead for insurers:
1. Estimating new members' costs and setting rates for the 2014 open enrollment season: The primary problem underlying this obstacle is insurers don't know what type of consumers are enrolling in their exchange plans. For example, younger consumers often have less medical conditions and therefore accrue fewer costs, while consumers with pre-existing chronic conditions have high rates of medical utilization and expenses. Without knowing more information about their new members, insurers may need to "conservatively set their rates higher than they were in 2014" to ensure they still make money, Donahue said.
However, such a pricing strategy could lead to rate shock, which might turn away younger consumers who can't afford higher premiums, and inflate costs for insurers whose membership base will include a higher amount of older and sicker members, FierceHealthPayer previously reported.
2. Identifying and managing new members' risk: Insurers need certain information about their membership base to identify and manage their associated risks. But when consumers apply for coverage through exchanges, insurers don't always receive the needed information. "They don't know who these members are and what their claim history is, and if they're high-risk or low-risk individuals," Donahue said. It's likely "those who are persistent enough to stick around to try to get through an exchange enrollment right now are likely to be very high-risk individuals," he added.
What's more, young adults, which insurers need to enroll to guarantee their success in a post-reform market, bring their own level of risk--as they become insured, they're using the medical system more often. One May study showed young adults' new coverage has shifted $147 million in emergency room-related costs to insurers in only one year. While an April study showed young adults cost insurers an extra $2 million as they use more medical services than their peers.
3. Addressing members' medical needs proactively and cost-effectively: As insurers work toward addressing exchange challenges, their efforts may lead to, or hinder, achieving improved outcomes and decreasing costs in the employer-based insurance market. To realize the benefits, Donahue recommended insurers develop stronger ties to their members, become better at profiling members through data analytics tools, promote greater cost transparency and establish employee wellness programs, especially given employers' increased openness to such initiatives. "[Insurers] haven't done this historically," Donahue told Insurance Networking News. "They relied on employers for a large part and maybe even brokers to a lesser extent."
To learn more:
- read the Insurance Networking News article