In about one year from now approximately 12 million individuals will begin looking for health insurance coverage by using a health insurance exchange authorized by the Affordable Care Act (ACA) (P.L. 111-148 and P.L. 111-152). By 2021 that number is expected to be nearly 30 million. What will be the demographic make up of these people, and what will theses exchanges look like where they will be shopping for insurance coverage? A report by PricewaterhouseCoopers’ (PwC) Health Research Institute (HRI) examined these questions and came to the conclusion that the market place will look different as a different type of customer will be looking for insurance and receiving health care than the current customer.
Enrollees. PwC’s HRI report found that the average median age of an individual purchasing insurance via an insurance exchange is expected to be about 33. The majority of these individuals, 88 percent, are expected to be in good health. They will mostly be caucasian with one in five speaking a language other than English at home, primarily Spanish. Only 24 percent are expected to hold a bachelor’s degree. Currently, 40 percent of individuals having health insurance have a college degree.
While 60 percent of the adults purchasing insurance through an exchange will be employed full-time it is expected that 90 percent of adults will qualify for a subsidy for 2014, according to a Congressional Budget Office Report. Early on it is expected that 60 percent of individuals purchasing insurance will have an income at or below 200 percent of the federal poverty level or less than $46,100 for a family of four. It is estimated that in 2014, 16 percent of individuals purchasing insurance through he exchanges will have an income in excess of 300 percent of the FPL. But that is expected to increase to 35 percent in 2021.
The majority of individuals purchasing insurance through an exchange will be new to the insurance market. It is estimated that for 75 percent this will be the first time they ever had insurance, according the PwC’s HRI analysis. It is estimated that 38 percent of individuals purchasing insurance from an insurance exchange will be eligible for Medicaid twice over the first four years of their enrollment. This churning will cause issues for the exchanges. Some states are proposing that a person who purchases insurance through the exchange will have the same identification card as a Medicaid enrollee, thereby making the transition easier for the insured and the state running the exchange as well as the Medicaid program.
Exchanges. Exchanges can be run by the state, the federal government or a partnership of the two. States that run their own exchanges will have to decide if they are going to have an open or closed exchange. In an open exchange any insurer can enter the exchange. In a closed exchange the state will screen insurers and select plans that can participate in the exchange. States like California, Oregon and Connecticut will have closed exchanges.
States that run their own exchanges will have to set eligibility standards for insurance providers and members. They will have to develop customer service plans and provide financial oversight as well. States will have set up websites, call centers, IT center, and out reach programs. Participating insurers will be subject to risk corridor programs that limit variations in gains and losses by the insurance companies. In the first years of participation an insurance company will be required to relinquish profits above 3 percent in addition to the 15 – 20 percent limitation on expenditure on non-health care functions. While insurers will be limited in their profitability they will be able to develop plans in a more broad way allowing customers to select benefit options like coverage for chiropractic care and other types of care that will affect premium prices as well as company profitability.
The addition of tens of millions of new customers to the insurance and health care market will change how insurers and medical providers deliver their product. The new demographics of these people as well as their experience or lack of experience with providers and insurers will provide new challenges for both of these markets.