Exchange Woes Growing Pains or Chronic Condition

Exchange Woes Growing Pains or Chronic Condition

Our Thinking / Healthcare /

Exchange Woes Growing Pains or Chronic Condition
Calendar13 October 2016

The reports of steep premium hikes in the public exchanges keep rolling in, raising concerns about their long-term viability. But should we really be worried?  Two recent news items make the case for and against a pessimistic view. 

Let’s start with the good news, which came in the form of an analysis conducted by the Urban Institute of the actual cost of coverage in public exchanges across the country. The headline? After adjusting for actuarial value and enrollee age, individual unsubsidized premiums on the public exchanges are about 10% lower than the average premium in an employer-sponsored plan.  In head-to-head comparisons, the exchange plans cost less in 80% of the markets examined. While the study adjusted for actuarial value, it did not address such differences as network size or provider participation and we know that narrow networks are one of the ways exchange plans are keeping prices low. It does explode the myth that exchange premiums are sky high, because, of course it's all relative -- compared to employer plans, they're not.  But compared to the deal that most people get in an employer plan  – a 75% to 80% premium subsidy  – unsubsidized coverage will seem extremely expensive to anyone who has been covered through an employer plan, or anyone buying coverage for the first time. (And the lack of any tax break for obtaining coverage  – only the threat of a tax penalty for not doing so  – is not going to help that perception.)

So maybe many exchange plans were priced too low to begin with and increases will stabilize once premiums reach a certain level, closer to that of group plans. The argument against this view was presented in a New York Times article that addressed the pent-up demand for services of many exchange enrollees, comparing it to a high-school football team at a buffet table. Whatever you might think about that metaphor – I can’t quite equate seeking diabetes treatment with seeking a third plate of baked ziti! – the exchange risk pools do present serious challenges. My colleague Tracy Watts had this to say about that: “Everyone knew that the people who really needed access to care would be the first to sign up and use healthcare services. The assumption was that over time, as the individual mandate penalty increased, more healthy people would join. Unfortunately, they have not. While employers experience turnover and changes in the workforce, the risk pools are much more stable than the public exchange.”

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