Yellow "risk ahead" sign with blue sky and clouds in background

After a strong, competitive 2015 open enrollment, the road became rocky for health exchanges for the remainder of 2015. The change came from a handful of factors - significant premium increases in many markets, lead insurers dropping out in others, and lots of insurer trepidation about long-term viability of exchanges. As exchanges roll into 2016, those complications point to a precarious path for many insurers.

The tumult that ended 2015 will continue throughout 2016, with more plans leaving the business and those that remain increasing premiums to compensate for the likelihood of less healthy risk pools.

The failure of a dozen Consumer-Operated and –Oriented Plans (CO-OPs) in 2015 was a sobering lesson in the importance of enrollee mix. Despite attention on how UnitedHealthcare will approach exchanges after losing $500 million on that line of business in 2015, UnitedHealth is a relatively small player in most exchanges. The CO-OPs were not. Many soared to lead their exchanges in market share, and the collapse of so many forced hundreds of thousands of enrollees to seek new plans for 2016.

The federal government severely limited reinsurance payments to insurers with adverse selection. Many CO-OPs kept premiums low and benefits rich, attracting too many high-cost enrollees to survive without the payments. The remaining 11 do not stand on firmer footing. Even the lone CO-OP to finish in the black for 2014 – Maine Community Health Options – froze enrollment after its financial fortunes slumped in late 2015. By 2017 open enrollment, the CO-OP landscape will likely be even sparser.

CO-OPs won’t be the only plans impacted in 2016. The risk corridor shortfall will drive more small carriers to leave the exchanges. Beyond the CO-OPs, other small plans exited exchanges in 2015 (Wyoming’s WinHealth and Access Health Colorado, among others). The level of competition in an exchange won’t matter if exchanges plateau at one carrier like those in West Virginia and Wyoming.

There are a few bright spots, however, where the prognosis for 2016 is positive. California appears to have forged a path to success for its exchange participants. By setting standardized benefit structures that participants have to adhere to, the competitive landscape is more stable – and possibly sustainable – and premium increases have not been as sharp, and even reduced in some cases. Notably, Kaiser Permanente sought a rate reduction for 2016, noting that it had not seen utilization spike as it had initially anticipated.

Participating plans in Connecticut have also had a more stable operating environment and this will continue throughout 2016. It’s true that the state’s exchange, Access Health CT, featured some of the highest individual premiums in the nation, but plans offered also had rich benefits and the higher premiums translated into financial stability for carriers.

But the story outside of a few exchanges point to challenges. Regional plans will have little room for error on member mix. If those plans don’t pick up enough enrollees – and a diverse population of enrollees – the financial scales could tip and force them out of the market.

Not only will the number of carriers fall nationally, but the number of PPOs available in exchanges will continue to decrease. With Blue Cross Blue Shield of Texas pulling its individual PPOs, the broad network exchange plan’s says are numbered. Outside of rural states, the viability of PPOs will be thoroughly squelched by 2017 open enrollment.

Premiums rose considerably in 2016 due to insurers finally having a full year of claims on which to base their rates. Large increases are likely to follow for 2017 due to different factors. The collapse of CO-OPs came after other insurers set their 2016 premiums, so those rates did not account for the potential influx of high-cost enrollees who lost CO-OP coverage. That correction won’t be missed in 2017 rates.

The exchange markets won’t lie on verge of collapse in 2016, but the business will add to insurers’ financial pressures and force consumers to choose carefully during open enrollment.

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