Moody's: PPACA Policy Changes Mean More Risk for Health Insurers

Recent health insurance exchange policy changes are bad news for insurers, according to Moody's.

The Obama administration's decision to delay the Patient Protection Affordable Care Act open enrollment period in 2015 — along with other last-minute policy changes — will probably have a negative effect on health insurers, according to a report from Moody's Investor's Service.

The administrative alterations, including 2014 enrollment deadline extensions and extending non-PPACA-compliant health plans, will expose health insurers to more financial and operational risks than previously anticipated, according to the report.

The more changes federal officials make to the healthcare reform law's implementation plan, the more ambiguous and precarious the future looks for insurance companies, says Steve Zaharuk, a senior vice president at Moody's and the author of the report. The risk and uncertainty could potentially discourage health insurance companies from participating in the exchanges in 2014 and 2015.

"The key point is that a lot of these changes…really just increase the uncertainty of the whole issue," he says. "When the rules keep changing, then the risk increases because the uncertainty increases."

Given the glitch-ridden rollout of, federal officials have faced pressure to push back deadlines for people seeking coverage through the new marketplaces. In recent months, HHS has announced several significant changes to the timeline for implementation and enrollment in the health insurance exchanges.

1. Non-PPACA-compliant health plan extension. Last month, President Obama announced he would use executive action to allow health plan providers to continue offering individual coverage next year that doesn't meet the reform law's requirements.

Originally, non-grandfathered policies — plans that went into effect or underwent certain changes after the PPACA became law in March 2010 — had to meet new coverage requirements in 2014, and many insurers sent out cancellation notices to people in non-grandfathered plans that weren't compliant with the new criteria. The development spurred Republicans to criticize President Obama, saying he had failed to keep his promise that Americans could keep their old health plans if they wanted under the PPACA.

Following the president's announcement, insurance industry members expressed concern about his decision, saying it could lead to fewer younger and healthier people purchasing coverage through the health insurance exchanges, causing premiums to increase. HHS validated those worries last week when it released regulations acknowledging that extending health plans that don't meet PPACA requirements could lead to fewer healthy exchange enrollees and losses for health insurers.

The extension of noncompliant plans could lead younger, healthier people to stay away from the exchanges in 2014, resulting in a negative effect on the risk profile of the exchange health risk-pool, according to Moody's.

2. Delayed 2015 exchange enrollment deadline. News also broke last month that HHS plans to delay the 2015 open enrollment period for the PPACA marketplaces by one month, a change meant to give health insurers more time to assess their 2014 experiences and set rates accordingly. The enrollment period was originally scheduled to run from Oct. 15, 2014, to Dec. 7, 2015, but will now take place from Nov. 15 to Jan. 15.

According to Moody's, this creates an issue for insurers because they will have less time to enroll members by Jan. 1.

3. 2014 enrollment deadline extensions. In October, the Obama administration pushed back the date it will start imposing penalties on people who don't purchase insurance by six weeks, a decision HHS declined to link to the technical issues plaguing the federal exchange website.

The PPACA requires most people to have health insurance by Jan. 1 or face a fine under the individual mandate. Previously, consumers who are uninsured for less than three consecutive months won't face penalties, so only those still without coverage after March 31 would have been fined, according to the report. That means people would have had to enroll by Feb. 15 to allow time for processing. Due to the policy change, they now have until March 31 to choose a policy.

Because people who don't enroll until the second half of March won't have their coverage in effect until May, insurers will lose out on as much as two months' worth of premiums, according to Moody's. Additionally, Moody's predicts the people who take advantage of the extension will be younger, healthier individuals, which will lead to an adverse risk pool for the first few months of 2014.

Additionally, the administration issued a second extension allowing individuals to enroll up to Dec. 23 of this year, rather than Dec. 15, and still have their policies take effect Jan. 1. This policy development will result in various administrative problems for insurers, who will have to make sure enrollees have been coded correctly in their systems to receive coverage Jan. 1. Additionally, if there's a surge in enrollment activity next month with exchange site technical issues and other uncertainties still present, it could be impossible for insurers to complete the enrollment process in time, according to Moody's.

Insurer reactions and risks for providers
Mr. Zaharuk says the situation is very fluid, and there could be more policy changes to come. As far as 2014 is concerned, he says there isn't much health insurers can do to mitigate the increased risk, short of dropping out of the exchanges entirely.

In 2015, however, they'll have more options. They will have a chance to recalculate prices for their products, or they could decide not to participate if they didn't like their experience during the first round.

"They'll have to take a look at the landscape and the changes the administration is planning," Mr. Zaharuk says. "I think the insurance companies will want some assurance that the 2015 game rules will be different for them to continue to play."

Despite the high risk during the first few years of the exchanges, he says the new marketplaces could work out well for insurers from a long-term perspective, since penalties under the individual mandate will increase in the future and more young, healthy people will likely purchase coverage.

"As the penalties get higher…that will push more people into the exchanges," he says. "There could be a stabilization of the population and a stabilization of the risk pool."

As for healthcare providers, he says low enrollment in the exchanges is the biggest cause for concern right now.

Last month, HHS revealed only 26,794 people successfully completed applications and selected health plans through the federal health insurance exchange site from Oct. 1 to Nov. 2. An additional 79,391 people enrolled through state-based exchanges. Recently, a person familiar with the matter told Bloomberg about 100,000 people successfully selected a health plan through the online federal exchange in November.

"I think the low enrollment numbers we've seen so far and the uncertainty and the slow take-up is not a good thing for the providers," Mr. Zaharuk says. "Obviously, hospitals and doctors are looking for patients who can pay."

More Articles on Health Insurance Exchanges:
White House Delays Small Business Exchange Launch by 1 Year  
CMS Issues Rule on PPACA Insurance Pay Parameters, Oversight Provisions  
HHS: Extending Health Plans Could Lead to Losses for Insurers 

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