2015 exchange attrition reached almost 25% from OEP to year end. We need more research on why ppl are dropping coverage. (1/2)
— Caroline Pearson (@CPearsonAvalere) March 11, 2016
This is a reminder about the individual health insurance market. It is a very churny market. There are a few key takeaways from a 25% in-year attrition rate and then a 15% to 20% switching rate during open-enrollment shopping periods.
The first is that this churn rate in the individual market is not unexpected. The pre-PPACA indivudal market had 60% churn. This makes sense as there are two major buying groups in the individual market. The first is where there is no other insurance available. The classic example would be a free lance writer or an independent consultant where the individual market is their first choice. This segment should be reasonably sticky during the course of the year. The second major segment is a holding tank until something better came along. That something better could be employer sponsored coverage, it could be Medicare, it could be Medicaid, it could be CHIP, it could be the VA.
PPACA really does not change this dynamic. The individual market is more open and accessible to more people, but since subsidies shut off when a family member is offered “affordable” coverage through employer sponsored coverage and the individual subsidies are shut off for a particular family member when they become eligible for other and usually cheaper governmental programs, “something better” is both more common and more accessible today than it was eight years ago. The big difference between today’s individual market and the 2009 individual market is that the premiums are subsidized so dropping coverage due to the lack of affordability is happening less. Throw in the individual mandate, the choice to stay covered is a lot easier today than it was in 2009 for anyone who has a pre-exisiting condition (including age) and a pair of ovaries.
The other thing that we have to remember is that the individual exchanges are a fairly small part of the insurance market. It is roughly 4% of the entire population and 4.5% of the covered population.
High attrition and rapid switching during the open enrollment period is what we see in the individual market. It is very tough for insurers to provide good population health incentives when the average length of stay for a member is under a year. Easy things such as flu shots would still be pushed, but longer term cost saving and quality improvement programs will be made available to members and doctor groups but not pushed as hard.
And that is (mostly) okay.
The big push for quality based payments, complex case management and global budgeting is at the Medicare level. There, individuals have a much longer length of stay with any one insurer and also a much higher average expense profile. Gains through not being dumb can be internalized even after initial capital/prep expenses are accounted for. PPACA is many things. It is not just the Exchanges, it is not just Medicaid Expansion, it is not just Medicare Advantage payment reform, it is not just throwing every cost saving idea against the wall to see what sticks, it is a complex piece of system reform where some reforms touch some pieces far more effectively and deeper than it touches others.