Charles Gaba is doing his usual exceptional work of tracking rate increase requests from insurers that want to sell plans on Exchange. He recently highlighted Oregon’s initial requests. As I was reading through the actuarial summaries, the different insurers modeled sabotage risk differently. Two carriers effectively discounted it. The rest are extremely concerned. I will highlight a few key elements to show how an actuarial shows significant concern about sabotage.
The first line is they projected an 8.5% increase in medical trend. This is the cost of services. 8.5% is a bit high but not unusually so. In the alternative counterfactual universe of a Hillary Clinton presidency, 8.5% would be the vast majority of the requested rate hike. But that is not the universe we’re in. Trend makes up less than half of the increase.
The second line explains the thinking Bridgespan has in their rate increase. They think that the non-enforcement of the mandate or at least the perception that the individual mandate is gone will lead to a sicker covered population. Individuals with cancer will still sign up, individuals who are in good health and see a doctor once every couple of years won’t sign up in the same numbers.
The key assumption here is morbidity. They are assuming that their covered population will be significantly sicker in 2018 than it is in 2016 and early 2017 claims. Mechanically, the pathway is again simple. They are projecting that the perceived lack of an individual mandate will more frequently discourage relatively healthy and low cost individuals from signing up in 2018.
All of the insurers in Oregon that filed and broke out their pricing assumptions had a morbidity increase of various sizes. Everyone is expecting a sicker population on the 2018 guarantee issued, community rated plans. The typical drivers of change in rates are changes in the prices paid (trend) and morbidity. One-off adjustments such as the health insurance tax are pretty much a uniform requirement and administrative expenses. Trend is easy to prove. Regulators can ask to see provider contracts, networks and utilization patterns. Morbidity is fuzzier. Morbidity is where insurers will put their policy uncertainty risk in their rate filings.
Finally, there is a side note on optimism. Optimism on the behavioral impacts of perceived mandate non-enforcement is a big bet for actuaries to make. The most optimistic projection of low morbidity increases will lead to higher enrollment. If there is no behavioral change from the perception of a lack of mandate enforcement, the optimistic company will do very well although it would be leaving money on the table if it is too optimistic. If there is significant behavioral response to perceived or actual non-enforcement of the mandate, the most optimistic company will lose a massive amount of money as it will have attracted a significant proportion of the somewhat expensive and expensive without the counterweight of the very healthy to balance and fund their care.