Tuesday, July 08, 2014

A Sticky Wicket

Recently, Pat wrote about the ObamaPlan auto-renewal process. Briefly, folks who've already bought new plans on-Exchange will be able to automagically renew their plans by simply checking off a box and sending the form back in to the carrier. Pat wrote about some of the key issues facing consumers who go this route; today, we'll take a look at the issue from the carriers' perspective.

One of the key problems facing insurers is likely to be "retention." Retention is the percentage of policyholders who keep their coverage over time. For some lines of business, a high retention rate is profitable, for others, a higher rate of turnover ("new blood") is preferable. So what's the problem with the auto-renewal process as regards retention?


"Simply letting [ObamaTax] exchange plan enrollees keep their plans without re-enrolling could change the plans' exposure to health claim risk."

So says Steve Zaharuk, Senior VP at Moody's Investors Service. His argument is that carriers with higher retention rates will have an edge in attracting investors. The idea is that carriers with higher retention rates will have an edge with investors, since "the ability to retain a sizable block of their business, administrative costs will be more predictable, and policyholder inertia will likely result in retaining many healthier, less risky individuals."

I beg to differ.

Historically, it was to the policyholder's advantage to shop around every few years, because it was almost a truism that new business rates at competitors would result in substantial savings (assuming one was in reasonably good health). Why would this change under the auto-renewal system? While it's true that the underlying assumptions that drove those lower new business rates are now gone, the economic issues remain. That is, if you've been relatively healthy the past year, and you see your renewal rate skyrocketing (again), you're going to be shopping.

Mr Zaharuk compounds his mark-missing with this little gem:

"Sick enrollees may be more likely to stick with their QHPs, even if prices rise, because they are in the middle of courses of treatment and need to keep their doctors and hospitals"

That's quite an assumption. First, since there's no underwriting -  Guaranteed Issue means never having to say you're sorry (as in "Declined") - there's little incentive not to shop. Skinny networks are skinny networks, and it's not necessarily unlikely that another carrier's wouldn't have some (or a lot of) overlap. Second, assuming that all (or even most) "sick enrollees" are in the "middle of treatment" is kind of a stretch. Many folks have chronic, manageable conditions that don't necessitate heroic efforts (and specific providers).

In the contest between affordability and accessibility, which do you think's going to win out? From the carriers' perspective, then, I'm not seeing this as a "win."
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