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Prof gauges exchange death spiral risk

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A well-known public exchange critic says some state exchanges look as if they could be much more sustainable than others.

Seth Chandler, a University of Houston law professor who’s taught courses on insurance law, has analyzed the latest Patient Protection and Affordable Care Act exchange enrollment activity statistics in a commentary on his ACA Death Spiral blog.

Chandler started the blog in November, to explain why he thinks some PPACA provisions, such as the ban on medical underwriting in the individual major medical market, could lead to an implosion in the market sectors affected by PPACA.

The latest U.S. Department of Health and Human Services exchange activity report shows 80 percent of the enrollees selected bronze and silver plans, or those with a relatively low actuarial value, and that about 46 percent of the enrollees are men.

If the percentage of 2014 exchange enrollees who pick the cheaper, lower actuarial value plans is high, that’s comforting, Chandler writes.

“A high proportion of enrollment in the more generous plans would have been a warning sign that enrollment was coming disproportionately from the sick,” Chandler says.

A high percentage of male enrollees is also a good sign, because adult men under age 65 tend to be less expensive to insure than women, Chandler says.

But Chandler says the percentage of enrollees in the relatively cheap-to-insure 18-to-34 age group varies widely from state to state, and that the states with enrollment shortfalls in the “young invincibles” age group could suffer from an underwriting “maelstrom.”

Chandler came up with a Maelstrom Index of 0 to 1, with a 0 score meaning a state is doing a good job both of enrolling young invincibles and of all people the exchange was hoping to enroll, and a score of 1 meaning a state is having trouble enrolling anyone.

Chandler says he thinks a state exchange with a score near 1 could be at high risk of ending up with a death spiral – a self-perpetuating cycle of price increases and enrollment decreases.

“New York and California are the two big states doing better than most,” Chandler says. “Connecticut is doing very well also.”

Chandler lists West Virginia, Mississippi and Maryland as states that look as if they may be having trouble both with enrollment of young people and enrollment of the targeted population as a whole. 

Chandler notes that HHS has been using the number of people who’ve picked plans as the enrollment indicator, not paid sales.

If the number of enrollees is much lower than the number of people who actually buy policies, the HHS enrollment figures may understate the dangers of adverse selection, Chandler says.

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