As new exchange enrollees come in, premium pricing for next year starts

This summer, insurers who want to sell plans in public exchanges for 2015 will be going through several rounds of application reviews with federal regulators before the Sept. 4 final submission deadline. Between now and then, they will have a lot of factors to consider in setting premiums.

Membership pools with high utilizers, the three risk mitigation programs, provider network rules and competitors pricing will probably be the four largest considerations, all with multiple variables. But one thing is for sure: premium prices will rise next year.

Underlying medical trends from new members are likely to be in high single digits, said Chris Carlson, principal and consulting actuary at Oliver Wyman. "We're starting out there and paying an increase in premium on top of that. We're looking at double digit increases," Carlson said.

Those medical trends will be accounted for, but perhaps slightly skewed with the permanent risk adjustment program and temporary reinsurance and risk corridor programs, in which insurers may end up seeing some "topsy-turvy results," said James O'Connor, principal and consulting actuary for Milliman.

For example, in terms of utilization, young males are typically more profitable than older males, and women in their childbearing years generally are more expensive, but the "3Rs," as the programs are known, change that, leaving young men, for instance, with a negative 3 percent profit margin. Of the 127 conditions handled by the risk adjustment system, all but nine result in a profit margin greater than the 3 percent target in the pricing, O'Connor said, based on modeling Milliman has done.

Another factor comes from the reinsurance program. The attachment point is going up to $70,000 in insurer costs per person in 2015, from $45,000 in 2014, and a cap is being set at $250,000 per person. Coinsurance rates will also be reimbursed at a much lower rate: 50 percent in 2015, compared to 80 percent in 2014.

"In 2014, we saw anywhere from 6 to 15 percent reduction in rates because of the reinsurance program in the individual market," O'Connor said. Now, "we'll see a rate increase from 2014 to 2015 due to the lower amount that will be available through the reinsurance program."

For network adequacy in insurance exchange plans, Centers for Medicare & Medicaid Services regulators are introducing a new "reasonable access" standard, instead of just relying on insurer accreditation, which may lead to a slight broadening of the narrow networks seen in 2014 exchange plans and also contribute to slightly higher premiums.

For essential community providers, CMS regulators are planning to extend the percentage required in a qualified health plan service area from 20 percent to 30 percent, along with a "good faith" offer to contract with all available Native American health providers and at least one provider from every category, including federally qualified health centers (FQHCs) and HIV/AIDS providers.

Then there is the question of what competitors, including new entrants like nonprofit cooperative plans, are setting premiums at, which may actually counter the other trends.

Insurer positioning next-to-the-lowest rates is an important strategy many have taken to remain competitive. The tactic may have required giving up profitability for 2014 in order to attract membership and it may remain critical as enrollment is expected to double over the next few years.