$2.32 per person per month

That is the great “risk corridor” and “death spiral” potential of one major Exchange carrier.  Highmark is an insurer for Pennsylvania, Delaware and West Virginia.  They did well on the Exchanges this year by picking up over 100,000 new members in Pennsylvania.  However their actuaries were off by a little bit.

Insurance News Net:

Highmark Inc. gained 104,000 members through the Affordable Care Act’s online exchange — far more than any other insurer inWestern Pennsylvania.

But that boost in business has a cost.

The state’s largest health insurer expects to lose $2.9 million on its exchange business in Pennsylvania from July 1, 2014, to June 30, 2015, according to a filing with the state Department of Insurance.

The actuaries, flying blind, were able to get within a large cup of coffee.  The article states that the major source of error was an underestimation of how much “catch-up” care that previously uninsured individuals were consuming in the first three months of the open enrollment and active policy period.  I think that this error will narrow as the last minute surge of healthier and younger people who either signed up last week or are in the process of signing up now through the blue box enrollment period enter the acturial calculations.  But even if the revised projection is perfect, and the age/health composition of the Highmark risk pool does not get younger/healthier, their base rates have to increase by the cost of a good cup of coffee. 

So how do we get death spiral stories out of that? 

We don’t.

25 replies
  1. 1
    Earl says:

    If the narrative must be fed, a cup of coffee is all it will take…

  2. 2
    Cervantes says:

    their base rates have to increase by the cost of a good cup of coffee

    That’s well put. Do you also have that increase as a percentage? (Thanks.)

  3. 3
    low-tech cyclist says:

    But…but that’s a whole $27.88 per insured household per year! How will they be able to handle this crushing burden?

    Oh wait – that’s the cost of a couple of delivery pizzas. Never mind. :-)

  4. 4
    Baud says:

    The article states that the major source of error was an underestimation of how much “catch-up” care that previously uninsured individuals were consuming in the first three months of the open enrollment and active policy period.

    If only those people had gone to the emergency room before they purchased insurance…

  5. 5
    BC says:

    Wait: people who buy health insurance expect to use that health insurance to get care they couldn’t afford before? Oh, the humanity!

  6. 6
    Chyron HR says:

    Um, hello? Costs won’t go up because they can execute the sick people with their death panels. It’s like you weren’t even paying attention back in 2010.

  7. 7
    Poopyman says:

    Maybe I missed it somewhere, but has this particular case already been characterized as a death spiral? Wouldn’t surprise me, but I haven’t seen it.

    This seems like it’s actually a really good projection on their part. How does it stack up against past projections, and have we seen results from other states yet?

    And a sign that my imagination may be overactive, via the Newsmax headlines:

    The One Thing Your Prostate Needs Every Morning
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  8. 8
    azlib says:

    Wow! Their actuaries got pretty close with relatively incomplete information.

  9. 9
    MomSense says:

    Speaking of “catch-up care”, I have been wondering to what extent future seniors entering Medicare will be healthier because they will not be catching up at age 65 and how this will affect Medicare’s cost projections.

  10. 10
    J.Ty says:


    The One Thing Your Prostate Needs Every Morning
    Ted Cruz or Rand Poll? Vote Here Now

    Ugh, neither, thank you very much.

    And damn, those are some good actuaries. I would be ecstatic if my models looked like that on a regular basis.

  11. 11
    MomSense says:


    Fortunately I don’t have to worry about my prostate health every morning!

  12. 12
    Richard Mayhew says:

    @Baud: I don’t have it as a percentage as I don’t have their age/plan structure breakdown. Eyeballing and making some massive wild ass guessing assumptions, I’m betting that the error was between 2% to 4% off (lower if the projected loss is before any risk corridor and reinsurance payments, higher if those factors are included)

  13. 13
    Elmo says:


    That is an excellent, excellent question.

  14. 14
    Richard Mayhew says:

    @BC: @MomSense:

    Catch-up care was projected, just how much has been the question. And MomSense brings up a major data point for catch-up care — Medicare spending for Age-65 is a fascinating data set as it is a universal health payment system which includes people who had good insurance for a very long time, people who had crap insurance and people who had no insurance. Those last two cohorts have massive catch-up care needs that are met in the first year of Medicare eligibility, and that data has been used to make decent guesses as to the amount of catch-up care that Exchange policies will have.

  15. 15
    sparrow says:

    Yeah, I’m not surprised about the catch-up care. Between grad school and starting my first real job with Real Insurance I was on a catastrophic plan for a few months (and the grad school shitty insurance covered not much). The DAY my new benefits activated I had an appointment with a dentist to extract a tooth, the optometrist to get a new glasses prescription, the dermatologist to check out a scary mole, a gynocologist to get the 2-year overdue checkup, and a psych to get my ADD meds. No joke. I was counting the days. And I’m “healthy!”.

  16. 16
    MomSense says:

    @Richard Mayhew:

    Does it make me a wannabe wonk that the idea of actuaries using all that Medicare data to form policy makes me very happy?

  17. 17
    Richard Mayhew says:

    @MomSense: Wonkdom is a state of mind and inquiry — so yes

  18. 18
    rikyrah says:

    You continue to bring it…thanks.

  19. 19
    JoyfulA says:

    Highmark’s bigger problem is that it bought a hospital chain in Pittsburgh so it wouldn’t fail and put Highmark at the mercy of UPMC as the only remaining hospital group in the Pittsburgh area. Now UPMC refuses to contract with Highmark because it is a “competitor.” They’re playing hardball.

    (Highmark has long had community rating for its single payers, of which I was one for decades. Two friends move to Pennsylvania to get affordable (c. $500/mo), high-quality individual health insurance.)

  20. 20
    lorimakesquilts says:

    OMG The horrors, an insurance company might lose $3 mil on ONE of their risk pools. Call out the National Guard. I appreciate that they’re in it to make money but come on, their actuaries rock and should be proud of getting so close. With a gross of over $900 mil, that $3 mil isn’t even worth a blink.

  21. 21
    Cervantes says:

    @Richard Mayhew: Thanks for the rough estimate, Richard. I appreciate it.

    It’s fascinating to watch the data come in. Even for me, decidedly not an expert in the field, it is exciting to keep track of the PPACA’s direct effects (first-order, second-order, etc.), not only on people’s health going forward but also on costs to them and to the tax-payer. And then there are indirect effects. And then, given more data, there are things smart people like you will come up with to improve the system.

    Apart from your articles here, do you know of a comprehensive attempt to make sure that the PPACA gets the credit it deserves for all of this? Any particular academics I should keep track of (apart from the ones I’ve already cited here)?

    Also — and this is an impossible question, really — is it still too soon to discern whether the new framework will make it more likely, or less likely, that we will some day get federal single-payer health care?

    And finally, can you predict when I will see a double-rainbow unicorn?


  22. 22
    Bill White says:

    Same insurance company, right?

    Highmark CEO William Winkenwerder Jr. collected $1.2 million in salary and more than $3 million in bonuses and benefits in his first full year on the job, according to documents filed with the state Department of Insurance.

    Read more: http://www.post-gazette.com/bu.....z2xvxsJ96z

  23. 23
    Commenting at Balloon Juice since 1937 says:

    Every death spiral has to start somewhere. I can picture the Faux News graphic now, a giant big gulp of coffee.

  24. 24
    Villago Delenda Est says:

    So how do we get death spiral stories out of that?

    Well, what you do is use your rolodex to contact Heritage, AEI, and other outfits to write the story for you and submit it as your own work. The editor won’t notice a thing, because he’s paid not to.

  25. 25
    burnspbesq says:

    So how do we get death spiral stories out of that? We don’t.

    I’m afraid you’ve vastly under-estimated the creativity of the right-wing noise machine.

Comments are closed.