Claims Costs, Policy Decisions Factors in Early ACA Insurer Participation, GAO Report Says

Although there has been much discussion over the past few years as health plans moved in and out of the exchanges for nongroup health insurance with the passage of the Affordable Care Act (ACA), little has been known about their claims costs or the factors driving their decisions. A recent report from the Government Accountability Office (GAO) found that claims costs and federal and state policies largely influenced insurer participation in exchanges.

The report includes information from 9 insurers in 5 states and reviews data on profits and losses. The states that were selected—California, Florida, Massachusetts, Minnesota, and Mississippi—were chosen for geographic variation, as well as whether they had a federally facilitated or state-based exchange.

The report delved into why claims costs varied widely, and why premiums and plan designs changed, in the early years after the ACA went into effect.

Claims Costs: Higher Than Expected and Wide Variability

Medical costs were higher than expected from 2014 to 2017, insurers said. In some cases, they were 6% to 10% higher in 2014. According to the GAO’s interviews, as well as a literature search that it conducted, the difference in actual and projected claims costs in the early years of the exchanges can be traced to issuers lacking historical data to support new actuarial assumptions in such a different environment.

Prior to the ACA, insurers could deny coverage or adjust premiums based on health status. How these changes would affect utilization, cost, and the morbidity of the risk pool “were challenging to accurately estimate,” the report said. And enrollees, some of whom had access to healthcare for the first time in years, or ever, were sicker than expected and had higher than expected medical and pharmaceutical costs.

The GAO said that a study examining enrollees in Blue Cross Blue Shield plans found that those who enrolled in 2014 and 2015 had higher rates of certain diseases, such as hypertension, diabetes, depression, HIV, and hepatitis C, than those who enrolled in the individual market prior to 2014. In another example, 3 plans said that the numbers of enrollees with end-stage renal disease were unexpectedly high.

Utilization rose, possibly because previously uninsured or underinsured patients sought care after enrollment. One study found differences in actual and projected utilization for outpatient visits and prescriptions in 2014 to be 40% and 10%, respectively.

In addition, claims costs were affected by federal policies. For instance, rules around special enrollment periods contributed to higher than projected claims, as people delayed care until they could enroll during that period and then dropped the coverage after receiving treatment. Another policy allowed the use of transitional plans that were in existence prior to 2014, which were used primarily by healthier people who sought to maintain their coverage and did not go through the exchanges. In addition, the timing to allow these other plans happened too late for insurers to adjust rates for 2014.

While claims costs generally grew from 2014 to 2017, some issuers experienced wide swings in costs from year to year. Most issuers attributed the volatility to large changes in the number and health of enrollees each year.

In addition, average monthly claims costs varied significantly across issuers in the same state. For some insurers, differences in per member per month (PMPM) claims costs within a given state were often more than $100. That was noteworthy because the median PMPM claims costs were about $300.

Although insurers generally lost billions in the early years of the ACA, financial performance improved by 2017. Those plans that had lower losses in the early years had narrow networks and a managed care plan design.

Expanding or Reducing Plan Participation, Premiums, and Design

Of the 9 plans surveyed, 3 issuers expanded their participation in the market, 3 reduced their participation, and 3 had no changes. They cited multiple factors, and usually a combination of factors, that led to decisions to change their participation, such as claims costs, pricing strategy success, actions by competitors, state policies, and level of funding through the federal risk corridors program.

For example, federal funding changes, such as the planned phase-out of federal programs that helped issuers mitigate risk, including payments and adjustments for issuers with higher-cost enrollees, the limited funding for one of those programs, and the ending of federal payments for cost sharing, led to reduced participation and increased premiums.

On the other hand, state requirements and funding had different effects, depending on the state. Some issuers gave examples of state requirements that resulted in lower participation and higher premiums. Other state policies minimized premium increases or variations in benefit design for issuers participating in the state’s exchange.

In addition, insurers told the GAO that they expect premiums to be affected going forward as a result of the removal of the individual mandate tax penalty and the expansion of short-term and association health plans.