PPACA, Lack of Data Challenging Actuaries

How do you price a service when you have no idea what it will cost you to deliver? That’s the challenge actuaries faced as they tried to predict medical costs for the thousands of new enrollees participating in health care exchanges across the country.

Actuaries thrive on data – specifically, demographics on age, sex, location and health care history. Under Obamacare, insurers must accept all comers with no health information on enrollees. Additionally, they were asked to establish premium rates for an unknown population as participants rushed to meet the sign-up deadlines. Last minute regulatory changes provided further complication – forcing unexpected revisions to calculations that had been worked on for years in preparation for exchange deadlines.

Waiting for Claims Data

The result has been a nightmare for actuaries and a roll of the dice for insurance companies. Without valid data for actuarial analysis, insurers were forced to make big bets on how things would play out for 2014 – establishing premium rates for exchange offerings without accurate cost projections or competitive market pricing. Some companies unintentionally priced themselves high, while others won with marketplace sign-ups tracking to their predictions.

Most actuaries estimate it will take at least another year to gather enough data to make accurate cost projections to help manage plan risk and generate profit for their companies. In the meantime, many insurance companies expect double-digit rate increases for 2015. These increases are to offset the estimated costs associated with the poorer health and pent up demand of new, previously uninsured enrollees signing up this year and next, as well as new fees being levied under PPACA. Only time will tell if these rate increases are warranted, as actual data meets ‘best guesstimates’.

Many employers are choosing alternatives to these anticipated cost increases by moving from fully-insured to self-funded plans that offer greater control over plan expense as well as increased plan flexibility.