Thirty-percent attrition bites into exchange revenues

By Katie Kerwin McCrimmon

Health exchange managers expect to lose about 30 percent of enrollees due to attrition by year’s end.

That means they’ll carry over about 114,000 existing customers as they head into the 2015 open enrollment season.

Connect for Health Colorado managers expect enrollments to slide back from a total of 146,000 so far.

Connect for Health encouraged people across the state to sign up for health insurance.

Connect for Health encouraged people across the state to sign up for health insurance.

For 2015, managers plan to retain the base of 114,000. Then, initial projections for next year predict low-end sign-ups of 54,500, a mid-level goal of 80,000 and a high-end target of 128,500 additional customers.

Again next year, managers expect about 30 percent of the new customers to drop off at some point during the year.

Managers say high attrition is typical in the health insurance industry, and other states are seeing similar trends. Furthermore, the exchange’s CFO had planned on banking about $5 million this year from user fee revenues. Even with just 114,000 enrollees, the exchange should take in about $5.4 million in user-revenues this year. So, there’s no shortfall in the near term.

But Connect for Health must become financially self-sustaining. The 1.4 percent fees on monthly premiums for each plan sold are a key source of revenue. And after start-up cash from multiple sources evaporates in 2016, the fees will be the core source of income, meaning dropouts harm the exchange’s bottom line.

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Board member Eric Grossman said during a finance committee meeting Wednesday that he thinks it’s wise to plan for attrition; nonetheless he’s concerned about the high rate.

“If you continue to forecast a 30,000 attrition number, eventually you run out of members,” Grossman said.

Of the 146,000 people who signed up by the end of August, exchange managers said 10 percent dropped out right away, never paying their first month’s premium. Then they projected that about 20 percent would leave by the end of 2014.

As the economy improves, it’s possible some people who needed individual insurance bought through the exchange, then dropped their coverage because they found work with an employer who provided insurance. Insurance industry experts also say people sometimes sign up to get coverage when they’re sick, then later drop out, which undermines the concept of insurance.

Connect for Health Chief Financial Officer Cammie Blais said it’s difficult to pin down accurate attrition rates early since customers have a long grace period to pay their premiums.

Blais estimates that the user fees will bring in about $5.4 million in revenues throughout 2014. On top of that, an assessment on about 920,000 Coloradans who have insurance outside the exchange will bring in about $14 million this year. Lawmakers allowed the so-called “broad-market assessment” on people who don’t buy insurance through the exchange in order to give Connect for Health extra cash in its start-up years.

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Colorado’s exchange also is receiving some funds from Colorado’s now-defunct high-risk pool, Cover Colorado. Altogether, Blais said she expects Connect for Health will get about $12 million to $13 million this year from Cover Colorado.

Rates for new plans for 2015, which were just approved this week, are expected to stay relatively flat. Blais had previously predicted they would tick up slightly.

“It benefits everyone to have (rates) go down, but it doesn’t benefit our administrative fees,” Blais said.

She is planning to present updated financial models to the full board at its October meeting.

As exchange managers prepare for the next open enrollment that starts on Nov. 15, they want to pump up enrollments from the statewide network of health coverage guides.

“We do need to expect more out of that group,” said Marcia Benshoof, chief strategy and sales officer for the exchange.

For next year, she hopes coverage guides will sign up about 12 percent of enrollees. This year, they signed up about 6 percent while brokers enrolled 29 percent and workers at Connect for Health’s Colorado Springs call center talked most customers through their sign-ups.

Board member Ellen Daehnick wants more analysis on why customers needed so much help from agents at the call center or in-person guides. Once upon a time, the exchange was supposed to be a self-service “Travelocity-style” system where customers could shop and buy health insurance completely on their own through the very expensive website.

Daehnick asked the staff to probe where the snafus came last year.

“We had a really high number (of sign-ups) through the call center. Is that because there’s something intrinsic about (needing help to buy insurance)? Or could we improve the website so we could drive sign-ups higher?”

Benshoof would also like to see insurance carriers be more aggressive in encouraging sign-ups.

Interim CEO Gary Drews is also working to “right size” Connect for Health.

“Over the next one to two years, we’re going to be maturing and getting more stable,” Drews said. “What kind of staffing will we need?”

Drews has pledged to serve until Connect for Health’s board finds a permanent successor. They hope to select a candidate by early December.

CFO Cammie Blais announced earlier this month that she’s leaving. She’ll become vice president for customer engagement at Eventus Solutions Group, a  Connect for Health’s contractor that set up the exchange’s Colorado Springs call center.

Clarification: This story has been updated. The first version said that exchange managers will start 2015 with a base of 114,000 enrollees. Because sign-ups and attrition are constantly in flux, it’s unclear exactly how many customers the exchange will have at the start of the year. The previous version also said that 30 percent of customers have left the exchange. About 10 percent never pay their premium in the first month after signing up and therefore leave right away. Exchange managers are projecting that an additional 20 percent will leave by the end of 2014. An earlier version said they had already left.

Correction: An earlier version of this story said Eventus Solutions Group, a Connect for Health contractor, set up and ran the exchange’s call center. They set up the center, but did not run it.


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