By Bob Semro
Connect for Health Colorado, our state’s health insurance exchange, had its first anniversary as a marketplace last week. That’s a milestone, but a more important milestone comes in 2015. That’s when the marketplace must be financially self-sufficient.
Based on early projections, it looks like the marketplace is on its way to meeting that goal.
Connect for Health Colorado’s Finance Committee recently offered a revenue projection for the current year. Using a conservative approach, it projects that revenue for 2014 is about $600,000 above earlier estimates, and total revenue for the year is expected to top out at $5.4 million.
Revenue for Connect for Health Colorado comes from a 1.4 percent administrative fee on premiums for health plans sold through the marketplace, as well as a number of other sources. The average monthly premium this year is about $337.
During the first open-enrollment period, many analysts and pundits predicted low enrollment, especially given technical problems experienced in the rollout of the federal exchange. As it turned out, both national and state enrollment numbers were better than expected. Connect for Health Colorado’s enrollment turned out to be well above projections. As of Sept. 2, enrollment reached 146,110, well above the midrange estimate of 136,300. And now, enrollment is more than 148,000, according to estimates.
Of that total, 90 percent paid the initial premium and obtained coverage. The 10 percent non-payment rate is not especially surprising. Most of these new enrollees were likely uninsured and unfamiliar with the health insurance market and processes. Some of these potential enrollees may have been determined to be eligible for Medicaid after their initial enrollment. Some may have taken jobs with health benefits. Others may have decided not to purchase coverage and instead paid the individual mandate tax penalty. For 2014, that penalty was the lowest it will ever be – $95 for a single adult and a maximum of $285 for a family, or 1 percent of family income, whichever is larger.
One key area where data are still lagging is the number of policy cancellations and renewals. In fact, the marketplace does not have comprehensive data for policyholder attrition. The carriers provide that data, and there is no hard-and-fast deadline for submitting it. The actual attrition or cancellation rate for individual-market policies in 2014 will probably not be available until April or May of next year.
Another factor complicating data collection on cancellation notices is the introduction of a federal grace period. The Affordable Care Act created a 90-day grace period for enrollees who receive a federal subsidy to pay their premiums before an insurer can terminate coverage. These are lower-income individuals, and some may have trouble consistently making premium payments. The grace period means, after making an initial payment, policyholders can go up to three months without making a payment before coverage is terminated. Almost 60 percent of marketplace enrollees receive federal subsidies and are considered enrolled until carriers report termination of coverage.
In its revenue calculations, Connect for Health Colorado used a conservative assumption of retaining 70 percent of enrollees. That estimate was not an actual cancellation rate and was used for financial planning purposes only. The point of the 70 percent estimate was to show that even with a high cancellation rate, the marketplace would still have sufficient revenue.
Another positive note is that enrollment is increasing. Even though some people are leaving the system, even more are coming in. Under the ACA, insurance can be purchased only during predefined open-enrollment periods, unless there has been a “qualifying life event,” such as a divorce, marriage, birth or loss of coverage. Connect for Health Colorado is getting roughly 4,000 enrollees per month from people experiencing life-changing events. This clearly shows interest and demand.
In addition, individual mandate penalties are expected to have a greater impact on consumer choices. The penalty for 2015 will increase to $325 per single adult and up to $975 per family, or 2 percent of family income, whichever is larger. In 2016, the penalty will max out at $695 per adult and $2,085 per family, or 2.5 percent of family income, whichever is larger. As the penalty increases, there will be a greater incentive to purchase coverage.
For 2015, Connect for Health Colorado offers a range in estimating enrollment: 54,500 on the low end, 80,000 at midrange and 128,500 on the high end. We won’t know actual numbers for more than a year, but if the midrange estimate is correct, the marketplace will be enrolling substantially more people than might leave under a high attrition rate.
The results of the midterm elections and federal court challenges to the Affordable Care Act could have an impact on the exchanges and the insurance market. So how the health care reform law and the exchanges will affect enrollment over the long run remains to be seen.
But for now, in Colorado, estimates and trends are heading in the right direction.
Bob Semro is a health care policy analyst with the Bell Policy Center, a non-partisan policy research center that advocates public policies that reflect progressive values.