Health insurance carriers that participate in public exchanges will face three major challenges, according to a recent blog penned by Seth Kneller of TripleTree, an independent merchant bank focused on mergers and acquisitions, financial restructuring and principal investing services in the health care industry.

He describes them as:

1. Confronting "an actuarial 'blind-spot' as it relates to estimating the underlying cost structure of new members and setting rates for the ... 2014 open enrollment season."

2. "Identifying, stratifying and managing the ris of individual members as they enroll through the exchanges."

3. Developing ways to "identify and address the medical needs of their members in a proactive and cost-effective manner."

The chief obstacle for health insurance carriers is essentially a lack of insight into who’s enrolling in their HIX plans. “They don’t know who these members are and what their claim history is, and if they’re high-risk or low-risk individuals,” observes Scott Donahue, a TripleTree director who leads much of the firm’s work on exchanges. Chances are that “those who are persistent enough to stick around to try to get through an exchange enrollment right now are likely to be very high-risk individuals,” he adds.

But time may not be on the side of carriers in their quest to set appropriate rates for 2015 if the 2014 enrollments take longer than expected because of further online technical delays, public apathy or both, he explains.  

Donahue says premium sticker shock will result if the risk pooling is “substantially worse than their actuarial analysis indicated,” in which case carriers will need to adjust their rates in 2015 to reflect that fact. But where it gets tricky is “they may not have enough claims history by the time they set those 2015 rates to actually get an accurate picture of what that risk pool looks like,” he says.

He says the upshot may be for carriers to “conservatively set their rates higher than they were in 2014” in order to play it safe.

HIX insiders, no doubt, “will be watching for some creative approaches in the marketplace” as consumers expect a more retail experience in health care, Donahue believes. Among his suggestions is that carriers need to develop stronger ties to their customers, become better at profiling through data analytics tools, promote greater cost transparency and be more proactive about employee wellness programs in a post-health care reform climate.

“Carriers haven’t done this historically,” he adds. “They relied on employers for a large part and maybe even brokers to a lesser extent.”

A longer-term question for HIX observers to ponder is whether the public or private exchanges will serve as a catalyst for, or hindrance to, improved outcomes and cost management in the employer-provided health insurance market.

While that remains to be seen, Donahue believes both public and private exchanges will alter the relationship between carriers and consumers as well as enhance consumer intimacy with their doctors and overall health care experience.

He adds: “This is an industry under transformation both because of and in spite of the Affordable Care Act. Whichever way the tide breaks, especially around some of these short-term, very public challenges right now, this is an industry that is changing and needs to change, regardless of what the ultimate driver of that change, which is a good thing.”

Bruce Shutan is a freelance writer in Los Angeles.

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