Jockeying for position among insurers has also led to people jumping from plan to plan hunting for the cheapest deal, which makes it difficult for plans to accurately model expenses or provide cost-saving primary care preventions and interventions that make care more affordable over the long term. Among those who’ve selected plans on the exchanges attrition has been high, with as many as 20 percent failing to pay even the first premium. As the market stabilizes and as people become used to the ACA’s regulations, those patterns should settle down.
Also, proposed premium hikes may not reflect the final premiums, since they are based on a number of factors including regulatory approval. Despite some high proposed premium increases last year and similar warnings about financial ruin, premiums only rose about 8 percent on average. The doom-and-gloom today just might not match up with reality come fall. System-wide costs can be expected to be held in check by the general expansion of coverage, as providers now have a more robust source of funding for low-income patients through Medicaid. Accordingly, the Kaiser Family Foundation reports that hospitals have been seeing reductions in uncompensated care costs.
There is, however, a real case for pessimism. One of the most important ways that Obamacare has controlled costs in the exchanges so far has been the use of “risk corridors,” or payments to insurers whose costs exceed revenue by a certain amount. That provision expires in 2017, though, and its expiration will remove a powerful incentive for exchange insurers to keep premiums low. The risk corridors program has already run into legal challenges as disruptions in funding from Congress have led to lawsuits by big insurers for hundreds of millions of dollars. And if artificially low prices do exist, insurers that have used them and have taken a loss will have very little reason to keep premiums low at the end of the year, now that many competitors have been weakened and the federal government is no longer subsidizing that deflation. In 2017 the training wheels come off.
The Obama administration is also clearly worried about the lack of enrollment from young people and the prominence of short-term insurance plans, two problems that likely go hand in hand. The financial viability of Obamacare’s exchange risk pools hinges upon two things: the sheer number of enrollees and their overall health. Young adults are the most likely adults to be uninsured and the healthiest, which means that their participation is critical to the continued viability of the exchanges. A surge in young-adult enrollment last year brought the exchanges closer to working financially, but it was only a start, and potential premium hikes at the end of this year could make it impossible for more young adults to sign up. Those premium hikes could also erase the surge itself and push many enrolled young adults with unstable means back into the ranks of the uninsured, thus increasing the pressure to increase premiums even more.