Premium increases could be in Georgia’s future

January 15, 2014 14:58 pm

by Jason · 25 comments

On Monday, the Department of Health and Human Services (HHS) finally shed some light on the age demographics of those who have selected health plans on the state and federal Obamacare exchanges.

While much attention has been paid to the overall numbers, the age demographics — specifically, the number of 18 to 34 year-olds — of those who are signing up for health insurance coverage may be more important.

Last summer, before the launch of the exchanges, HHS Secretary Kathleen Sebelius said that the goal was to enroll 7 million people into health plans, of which 3.3 million were expected by the end of 2013. That overall open enrollment goal includes 2.7 million people (or 38% of all enrollments) needed to come from the 18 to 34 year-old age demographic, sometimes called “young invincibles.”

Based on the HHS numbers, Georgia isn’t on pace to meet its overall enrollment goal. Per an August 2013 memo, the Centers for Medicare and Medicaid Services (CMS) anticipated that 144,840 enrollments in Georgia by year’s end and 204,000 through March 31, 2014.

In reality, however, just 58,611 individuals from the state have selected a health plan, of which 26% are from the coveted 18 to 34 age demographic. Thirty percent (30%) of Georgians who selected a plan were 34 and under.

Many will say that this is a byproduct of a glitchy website. Others will surmise that it’s a lack of interest. Some will suggest that it’s some combination of the two. Whatever the reason, the actual numbers haven’t met expectations. The silver-lining for supporters of the law is that the numbers did jump in Georgia.

Now, a couple of things to keep in mind. HHS is using the “selected plan” term as some sort of a substitute for enrollment. But before anyone can be counted as an enrollment, they have to pay their first premium. There is no indication of how many of these “selected plans” are translating into actual enrollments in Georgia.

Another point is that, though Georgia is performing slightly better than the national average, the number of 18 to 34 year-olds is still relatively low.

Insurers need a large, diverse risk pool with young and healthy people to pick-up the costs of older and sicker enrollees. If insurers don’t meet target age demographic number, they could be forced to raise premiums for plans available on the exchanges before the 2015 open enrollment period.

It’s unclear what percentage of the market share the administration expected this age demographic to compromise of enrollments in Georgia, but the HHS numbers are concerning, although not necessarily an indication that the state’s insurance market is headed for the dreaded “death spiral.” For example, Bill Custer, a professor at Georgia State University, told GPB News that the 30% market share of those 34 and under is consistent with past rates.

In December, however, the Kaiser Family Foundation — which supports Obamacare — estimated that missing the 38% to 40% age demographic target (it varies by estimate) would lead to premium hikes, presenting two different scenarios.

“Under [the first] scenario, young adults would represent 33% of individual market enrollees instead of 40% as in the potential market,” wrote Larry Levitt, Gary Claxton and Anthony Damico. “Taking into account the allowed three-to-one variation in premiums due to age, we find that costs (health care expenses plus overhead and profits) would be about 1.1% higher than premium revenues.”

“Under [the second] scenario, young adults would represent 25% of enrollees, substantially less than their share of the potential market,” they continued. “[T]his is likely a worst-case scenario, since the expectation is that older and sicker individuals are more likely to buy first and that younger and healthier people will tend to wait until towards the end of the open enrollment period (which concludes March 31, 2014).”

Though they dismissed the prospect of a “death spiral,” the three researchers did concede that insurers would “likely raise premiums in 2015 to make up the shortfall.”

As noted by Kaiser, the line is that young and health people will enroll in droves toward the end of the open enrollment period. But, as Philip Klein explained, they’ll have represent a significant portion of enrollments over the next three months to hit the expected share.

Now, some health policy analysts, including those at the Kaiser Family Foundation, have dismissed the demographic numbers in recent days. Conveniently, they now claim that the worst-case scenario isn’t a big deal.

Obviously, it remains to be seen whether the “selected plan” numbers translate into enrollments and what percentage of them are young people. But the early warning signs of higher premiums in 2015, though perhaps not a “death spiral,” are there.

{ 25 comments… read them below or add one }

mountainpass January 15, 2014 at 3:09 pm

Jason, University is spelled wrong. Feel free to erase this post.

Jason January 15, 2014 at 3:11 pm

Fixed. Thanks.

Napoleon January 15, 2014 at 3:16 pm

Say “good-bye” to the provision that you can stay on your parent’s policies until your turn 26!

2g Strategies (@2gstrategies) January 15, 2014 at 3:39 pm

From @peachpundit Premium increases could be in Georgia’s future http://t.co/ygNHrvVZsW

saltycracker January 15, 2014 at 10:11 pm

The ship has hit a port side iceberg but cannot return to a dock that has been pretty much disassembled. PLAN B ?

seenbetrdayz January 16, 2014 at 8:42 am

Plan B is as always:

Old women,old men, and politicians to the lifeboats. The children as well as future generations can pick up the cost of the ship, the rescue efforts, and salvage.

saltycracker January 16, 2014 at 9:24 am
Chris Huttman January 15, 2014 at 11:01 pm

The young invincibles is a proxy but not the final story. More important is a mix of the healthy and sick, regardless of their age (for instance a 27 year old who had cancer last year is not a better risk than a 54 year old who has never been sick, regardless of age).

I found an interesting chart that might shed some light on whether the healthcare exchanges are working or not. It is called the 1-year stock quote for Humana, which is participating in the exchanges in pretty much every state and aggressively. And if they participate on the exchange, they have to sell the same plans off-exchange minus subsidy – so many people who don’t qualify for a subsidy just went direct.

Humana is up about 37% in a year, and up 47% off its 52 week low. Sounds like they won’t be losing money this year.

saltycracker January 15, 2014 at 11:55 pm

About 80% of those signing up are subsidized. The stock market was hot in 2013 betting on greatly improved future earnings. So it was rosey until the glitches and poor numbers started coming in.
Humana was recently downgraded by Barclays and Deutches Bank, but they should adjust their rates to account for the invincibles not showing, hopefully before earnings get nailed. They are much smarter than the Feds but the Feds have the surprise advantage.

John Konop January 16, 2014 at 7:47 am

Chris,

The problem goes beyound Obamacare…….on a macro you have real wages falling……debt growing for young people ie student loan debt……ie less money to spend on healthcare…..that is why this is a 2 front problem……one is reforming the education system focused on jobs and educational opportunities while in high school for skills…..ie lower cost, less students loans for students and higher wages via skills or less time in 4 year college and above…..Finally, that is why I have also focused on real cost savings ideas in healthcare …which I have posted numerous times….Solution we need better wages, lower cost for healthcare relative to percentage wages, and less debt for education…..

seenbetrdayz January 16, 2014 at 8:57 am

Don’t forget to increase the supply of healthcare providers.

This all boils down to supply and demand—the first and most basic of economic laws. If you have 500 people wanting to see the same specialist, you could either restrict the number of people allowed to see the specialist (which is what Obamacare will likely do when they have to start rationing—for lack of a better term— healthcare), or increase the number of specialists. We could do that by not making healthcare regulations such a damned headache for healthcare workers looking to open a clinic. Not every ingrown toenail needs ER-level treatment.

But what Obamacare does is makes sure that everyone has the insurance to pay for everyone to see physicians, without actually doing much of anything to increase the supply of physicians.

Imagine a mob of hungry people all wanting the last apple in the produce aisle, but suppose no one can afford it: you could either give them all enough money to buy that apple, which only creates a bigger ‘bottleneck’, or you could simply grow more fruit. People have been trying so hard to ignore the law of supply and demand in our economy, but it drives EVERY part of it.

saltycracker January 16, 2014 at 9:17 am

More physicians may be somewhat of an immigration challenge as our kids are undereducated, while increasing the paying players in the pool is an immediate problem. The signers are subsidized and the healthy are staying the course, don’t need it. Get serious on the mandate, cut the apron at 21, rethink the subsidies and get serious on enforcement.

saltycracker January 16, 2014 at 9:31 am

By enforcement I was thinking of the overwhelming fraud in the government programs however the Obama administration has already made it clear they were not going down that road except in selective situations. The only way out of that position is to privatize the programs.

saltycracker January 16, 2014 at 9:03 am

Educational reform is a long systemic and cultural change and the only solution on the table is to thrown tax money at the current mess. The better wages we need are those that cannot be mandated, they come from a dynamic economy. A government can feed off a decreasing pool of its people “until the, now majority, recovers” only so long.

Obamacare, immigration, education, public employment/supports and benefactor to the world, as they are now will move us more quickly to the crisis to resolve.

Good news it looks like we can feed on ourselves for some time to come.

Jason January 16, 2014 at 8:32 am

Humana also recently said in SEC filings that the risk pool was more adverse than expected. They didn’t revise earnings forecasts for 2014, but the warning was ominous.

mpierce January 16, 2014 at 11:43 am

Taxpayers are going to bailout the insurance companies.

John Konop January 16, 2014 at 12:45 pm

The insurance companies will just raise rates and increase contribution margins….This is why unless the reforms are centered around cost containment it will be the same game….We pay twice as much as most countries and do not get any better results…..

saltycracker January 16, 2014 at 12:45 pm

Not directly – they will be ok , taxpayers will not

mpierce January 16, 2014 at 1:32 pm

Directly through risk corridors.

PPACA
Sec 1342
(1) PAYMENTS OUT.—The Secretary shall provide under the program established under subsection (a) that if—
(A) a participating plan’s allowable costs for any plan
year are more than 103 percent but not more than 108
percent of the target amount, the Secretary shall pay to
the plan an amount equal to 50 percent of the target
amount in excess of 103 percent of the target amount;
and
(B) a participating plan’s allowable costs for any plan
year are more than 108 percent of the target amount,
the Secretary shall pay to the plan an amount equal to
the sum of 2.5 percent of the target amount plus 80 percent
of allowable costs in excess of 108 percent of the target
amount.

http://www.ncsl.org/documents/health/ppaca-consolidated.pdf

Harry January 16, 2014 at 3:07 pm

The taxpayer bailout is already built into Humana’s stock price.

John Konop January 16, 2014 at 3:09 pm

That is a good point!

saltycracker January 16, 2014 at 5:16 pm

Not exactly, let the games begin….but we agree the taxpayer should get braced.

Chris Huttman January 16, 2014 at 3:53 pm

From their statement:
The company chalked up the riskier climate to regulatory changes that allowed certain individuals to remain in existing, non-exchange health plans.

The “if you like your plan you can keep it” people. Well they can’t stay there forever. I don’t mean that to be crass – I just mean that some of these plans will go away, some of these people will discover cheaper exchange options, some people will move, have children, need to change deductible etc. Seems like a problem that will mostly fix itself over time.

John Konop January 16, 2014 at 5:09 pm

Chris,

From what I read the problem is younger people not signing up….The 2 biggest issues is they cannot not afford it combined with youthful sense of being invisible…….That is why the economics of the job market ie wages…. is a key factor combined with debt ie student loans…..

seenbetrdayz January 16, 2014 at 7:09 pm

Well, for all intents and purposes, the youth are invisible when it comes to political decisions.