Charles Gaba has a good post on the problems of pricing plans for the 2014 and 2015 Exchange years.
On the surface, it looks as though both the carriers as well as the regulators did a lousy job of predicting the costs for both 2014 and 2015, right? Well, perhaps…except for some important caveats.
For 2014, no one had the slightest clue what the market would look like. The ACA exchanges turned the entire individual market upside down;…
For 2015, however, the carriers should have had a full year of data under their belt so that they could adequately project expected costs over the 2nd year, right?…
The insurance carriers can’t wait until 5 minutes before the next open enrollment period begins to figure out their pricing. They’re legally required to submit their rate requests to regulators as much as 6 months earlier (June or July at the latest), depending on the state….
so instead of 12 months of data, they only had 3. That sucks, but at least it’s something, right?…
only around 2 million people were even enrolled in exchange policies in January 2014. Another 400K or so were enrolled in February, and around 800K more for March. The rest didn’t even start coverage until either April or May, by which point the actuaries for the various carriers were already furiously scrambling to cobble together the data from January, February and March….
As was pointed out to me this morning, not all of the claims are sent in right away. The claims for heart surgery performed in, say, mid-March might not actually be sent to the insurance carrier until May or June, and so on.
Policies that went live on 1/1/16 were the first policies where the insurers actually had decent data to price them correctly. Policies that go live on 1/1/17 will be the first policies where the actuaries will be projecting off of reliable evidence instead of guessing.
This is one of the reasons why the decision by United Healthcare to stay off Exchange in 2014 and then get on Exchange in 2015 and 2016. 2014 was always a beta test year for the insurers that got on the market in 2014. The 2015 plans had maybe 10% real data added to their pricing as we had to remember that we knew that people who signed up for 1/1/14 coverage starts were different and much sicker than people who signed up for 4/1/14 coverage starts. Initial rate proposals were due in the late spring with a revised/updated proposal response to the state regulators by mid-summer when there was a little more claims data. 2016 plans were being priced out on 70% of the preferred data set that had incorporated most of the catch-up care.
UHC did not have that data advantage. Their 2015 plans were priced on the combination of observation and conjecture and their 2016 plans were priced on 10% to 15% real data and 85% projections.