Insurers should prepare for 'volatile' individual market due to COVID-19 pandemic: study

The individual market next year is likely to be volatile due to the COVID-19 pandemic as new enrollees could cause adverse selection, a new report said.

The report from the American Academy of Actuaries (PDF) released Thursday comes as individual and small group insurers are trying to figure out their rates for the 2021 coverage year. But that task has become extraordinarily difficult with the COVID-19 pandemic injecting massive uncertainty into the healthcare market.

“The composition of the 2021 individual market is likely to be volatile … there is likely to be some level of influx of individuals who lost employer-sponsored coverage due to the economic downturn resulting from the COVID-19 pandemic,” the report said.

While many of the individuals who lose their income could qualify for Medicaid, some will not, especially if that state hasn’t expanded Medicaid, the actuaries noted.

Any increase in enrollment for the Affordable Care Act’s exchanges on the individual market could be offset by people who are not eligible for tax credits who leave due to the high cost of health plans.

However, even a small change in enrollment could significantly affect the morbidity level on the exchanges, which will affect the risk pools.

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“Individuals with employer coverage are generally thought to be healthier than people with coverage in the individual market,” the report said. “On the other hand, coverage transitions can result in adverse selection.”

When an individual loses coverage, they must decide whether to purchase more coverage. Less healthy people generally get new coverage.

Another area of uncertainty is whether there will be subsidies to boost COBRA for the newly uninsured. So far, Congress has not approved boosting subsidies for COBRA plans.

“In the absence of significant COBRA subsidies that facilitate the ability of workers losing jobs to maintain their prior employer coverage, previous COBRA experience may be an appropriate proxy for the morbidity of members moving into the individual market,” the study said.

But the pandemic could have increased the perceived value of insurance and reduced adverse selection among people moving from employer coverage to the individual market, actuaries said.

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Meanwhile, the pandemic could likely accelerate a trend of smaller employers not offering healthcare.

“During past recessions, some insurers have seen increased morbidity in insureds among employers that retain coverage, suggesting that employer plans that stayed in force had less-healthy members than those that lapsed,” the study said.

Another morbidity increase could occur if less healthy employees eligible for COBRA suffer job losses and are more likely to sign up for COBRA.

“This effect could be magnified with the extension of the COBRA election period as well as the extension of the window for timely premium payments during the national emergency generated by COVID-19,” the study said.

Hospitals and other types of providers could also have success negotiating higher payments from payers depending on what type of federal relief could be received.

“Some payment increases may be temporary in nature, thereby affecting 2021 costs only minimally,” the study said.