Reform and Exchanges

While the Administration has embarrassingly had to delay the employer mandate for at least a year, the individual mandate and the accompanying exchanges are still going forward as of now.  Regular stories are appearing about premium rates on the exchanges in various states and whether they are high or low, about which insurers are and aren’t participating and about individuals’ intentions to purchase or not, or even whether they are aware of the mandate and their options.  All of this information gets spun in different ways by proponents and opponents of the law.  It is helpful to keep a few basic facts in mind when considering how this is likely to unfold.  In many, if not most states, a number of the largest insurers are not intending to participate in the exchanges; that is, they will not be offering policies to consumers through those exchanges.  The reason appears to be that they are very uncertain who is actually going to enroll, what competition will look like and what kind of financial risk they may be taking.  This seems very prudent.  On the other hand, there are in many states several smaller, sometimes new, insurers that are planning to offer products on the exchanges.  It should be noted that these entities generally have limited financial resources and are therefore not well-prepared if their estimates of costs versus actual experience turn out to be wrong.  These insurers are often also less experienced at understanding how to estimate and manage the financial risk inherent in any insurance product, particularly in a new and uncertain environment like the exchanges.  And when you read that many are offering what seem like low premiums, that should raise alarm flags regarding the potential for financial miscalculation.  An exchange with a number of small, inexperienced, under-capitalized insurers who have under-priced the product is a recipe for even more problems.  The reticence of the large, national insurers to participate should have regulators very worried and they should be more concerned about the insurers who do participate underpricing than about being able to brag about how the exchanges are lowering premiums.