SN103 Challenges Of Pricing Health Insurance For 2014 Exchanges

Question 1

pricing mistake: affect financial results of insurers and impact consumers and taxpayers

Answer 1

1. If risk mitigation inadequate, the exchanges may be destabilized
2. If prices too high, consumers may not buy, exacerbating adverse selection
3. Health plan consequences from pricing too high or too low
   
   3. 1 Carriers that err on the high side in pricing will lose market share
   4. 2 if actual claims less than expected, profits are to be shared via the risk corridor-also rebates to policy holders via the ACA’s MLR provisions
   5. 3 Low pricing may bring losses not fully offset by ACAs risk mitigation - may be difficult to raise premiums to profitbale levels in future years if regulators limit rate increases

Question 2

Change introduced by the ACA, and resulting difficulties for pricing actuaries

Answer 2

1. ACA expands private insurance coverage-actuarial must assess:
   
   1. 1 extent healthy will elect to pay penalty rather than purchase coverage
   2. 2 what percent of ERs will stop providing health insurance
   3. 3 State Medicaid expansions affect exchange demographics
   4. 4 Predict morbidity levels of new exchange demographics
2. New benefit designs including the 4 levels of actuarial value
   
   2. 1 Decisions about benchmark plans left to the states; creates uncertainty for actuaries needing to know what products to price
3. Eliminates prem differentials by health and gender and restricts age to 3 to 1 ratio
   
   3. 1 how to bring existing age factors in line
   4. 2 adverse selection between young and older
   5. 3 selection effects will vary by state
4. Risk mitigation: temporary reinsurance, risk corridors, permanent risk adjustment
   
   4. 1 these add complexity to pricing since full parameters are unknown