Much has been made of the enrollment data in the Exchanges — pronounced “a success” by the Obama administration — and of the demographics of enrollments in the Exchanges — distributed enough towards the older end to be troubling. We don’t yet have the key data, however: what are the actual claims being filed by those newly insured on the Exchanges relative to what was expected. If the medical claims are higher than expected, that is likely to raise the costs of the Affordable Care Act this year and in the future. This year, high claims will increase “Risk Corridor payments” made by the federal government to losing insurers. Next year. it will place pressure on gross premiums charged by insurers or possibly force some insurers to withdraw from the marketplace. The result will be increased amounts paid by insureds, increased premium tax credit payments made by the government, and increased payments made by the government to address cost sharing reductions. It will also shrink the number of insureds below what it would have been had claims costs and, derivatively, premiums remained as expected.
Some evidence on claims costs is beginning to trickle in, however. Express Scripts, a large Pharmacy Benefit Management company that, so far as I know, has no axe to grind either in favor or opposition to the ACA, has published a report indicating that, at least so far, costs per member on the Exchanges are 35% higher than they are for commercial policies off the Exchanges. The study is based on a national sample of more than 650,000 pharmacy claims (423,000 covered lives) for the first two months of 2014 for patients enrolled in an Exchange policy with with pharmacy benefit coverage administered by Express Scripts. The analysis compared these pharmacy claims to those from commercial health plans, with pharmacy coverage administered by Express Scripts, during the same time period.
The key Express Scripts result — a 35% increase in claims costs — is significant for two reasons. According to data from the government’s own Actuarial Value Calculator, pharmaceutical expenses comprise about 21% of total healthcare expenses. Having to pay 35% more for such expenses is thus significant in and of itself. But peer-reviewed scholarly research such as that summarized and extended here indicates that pharmaceutical claims correlate positively with overall healthcare expenses. The higher pharmaceutical claims may just be the tip of the iceberg. Although these medical claims are often slower to be processed, Express Scripts has provided a disturbing leading indicator.
Before anyone pushes the panic button, however, there are less distressing possibilities. Everyone expected that those without prior health insurance or with lousy prior health insurance would result in a surge of claims to insurers for previously untreated conditions. One hopes insurers anticipated this surge in their pricing. If the surge is only transient as patients get various conditions under control, unanticipated extra costs on insurers will be addressed through Risk Corridor payments for this year and will not result in insurers revising their actuarial models of the risks posed by insuring on the Exchanges in an environment where most conventional underwriting methods are prohibited.
And, if one looks at the conditions that are apparently contributing to the high use of pharmaceuticals, a different spin can be placed on matters. The Express Scripts reports a higher use of anti-HIV/AIDS drugs, including expensive ones such as Atripla, among the Exchange population than among commercial insurers. So, it may be that the existence of subsidized coverage in the Exchanges is proving a vehicle for bringing hope and treatment to individuals with HIV or AIDS who previously were falling through the cracks (or being treated by other programs). The counter-spin, however, is that the fact that HIV treatment is a worthy end may be served does not mean that a general insurance scheme is the right way to address untreated HIV or AIDS. A coarsely rated and somewhat voluntary insurance scheme is a problematic vehicle for providing access to care to groups that include high-expense individuals, such as many with HIV or AIDS. The high and disproportionate prevalence of high expense individuals in a common pool contributes to the risk that the system will enter an adverse selection death spiral.
So, let me sound a notion of caution here. Just as the “enrollment” of 7 million people is not grounds for proclaiming the ACA a “success” or here to stay in any sort of stable way, an early datum about one component of claims is not grounds to proclaim the ACA a failure or to say with certainty that ACA insurance policies are likely to undergo massive premium increases. Still, since insurers will likely need to be making pricing decisions for 2015 in the coming months, and not after all the data is in early data can be important. The latest information from Express Scripts should be worrisome indeed.