PwC report presents portrait of health insurance exchange population

A country built upon declarations cannot stay quiet for long.

By November 16, each state in the union will have clambered atop the figurative soapbox and answered to health insurance exchanges, unveiling their intentions for Medicaid expansion and open insurance marketplace creation to the nation at large. With that deadline looming ever-near, PwC’s Health Research Institute (HRI) has released a forecasting report speculating what each state may affirm come next month. And with time running out, it seems some worms are turning.

The report projects that a majority of the remaining 37 states that haven’t announced their insurance agendas yet will opt for the federal government to play a direct role in running their exchanges — more states than had previously been expected. Eight states have already chosen to implement a federally facilitated exchange, with three states selecting a method that would split duties more equally between state and federal partners. Thirteen states and the District of Columbia have announced plans to apply a purely state-run exchange system.

"Newly created exchanges represent the biggest insurance expansion since Medicare in 1965," said Kelly Barnes, PwC U.S. health industries leader, in a press release. "The exchanges will serve a group of people who may be purchasing insurance for the first time. Companies seeking to capture this new customer base must work quickly to understand the distinct needs of this group and develop ways to communicate with them in clear, understandable terms."

With some 12 million Americans expected to start enrolling in exchanges one year from now, the portrait of the insured population is guaranteed to change, the report posited. Analysis of information gathered from two federal databases provided HRI researchers with a new vision of 30 million Americans under age 65 who will gain healthcare coverage under the Affordable Care Act (ACA) come 2021. 

The HRI report painted the to-be-insured population’s picture as such:

  • Close to one-third will gain coverage through Medicaid, 45 percent will shop on the exchange and nearly a quarter will enroll in employer-sponsored plans.
  • A majority will enter the healthcare system relatively young and single, though significantly less educated and more likely to be unemployed or underemployed than the current insured population.
  • They will have a median age of 33, and 88 percent report being in relatively good health today. More than 85 percent do not hold a college degree; 42 percent are employed full time; approximately 30 percent consider English a second language.
  • They will have a median income of about 166 percent of the federal poverty level, or $38,263 for a family of four.
  • Because of income fluctuations, many newly insured Americans are expected to cycle between Medicaid and subsidized exchange coverage — a phenomenon known as churn that makes a challenge of treating them through the continuum of care.
  • In 2014, approximately 75 percent of public exchange enrollees will be newly insured. Over time, outreach and education efforts by states and insurers will need to match the changing
 needs of exchange members as they transition from newly insured to more sophisticated customers.

"Serving a less educated, ethnically diverse population that is more likely to cycle on and off government support will require creative outreach programs, more targeted products and stronger ongoing customer support," Ceci Connolly, managing director of PwC's HRI, surmised in a news release.

For the health sector, state-based exchanges are expected to alter the ways in which medical care is marketed — according to the report, the insurance industry could stand to gain $205 billion in premiums by 2021 because of such systems.

“While states may establish their exchanges as passive “open markets,” they are likely to shift to the active purchaser approach as they gain enrollees, plan participants and ultimately buying power over the long run,” the report reads.

States’ decisions to expand Medicaid eligibility to 138 percent of the federal poverty level — a possibility granted by the Supreme Court in June — will vary the size of the health insurance exchange market, researchers said. (Refer to Figure 1, Figure 2, and Figure 3 for more information on projected exchange enrollment as dictated by Medicaid expansion).

Figure 1:

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Figure 2:

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Figure 3:

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Information gathered from the PwC Health Research Institute's report — "Health Insurance Exchanges: Long on Options;Short on Time." Presentation prepared by PhysBizTech staff.

The report also lists these primary consideration parameters for states, insurers, hospitals and physician groups, pharmaceutical and life sciences companies, and employers:

  • Uppermost on the minds of many insurers are the issues of pricing and risk selection.  At first, insurers on the exchanges are likely to compete based primarily on price.  However, as exchanges mature, health plans will need to differentiate themselves beyond price to maintain loyalty of existing members and attract new ones.  Because of the distinct health needs of the exchange population, large insurers and Medicaid Managed Care plans that already have experience dealing with the needs of low-income, less-educated populations may have an early advantage.
  • Expansion of coverage means doctors and hospitals will have many more paying customers.  But the new patient population is more likely to have difficulty with English, be unaccustomed to navigating the health system and have undiagnosed conditions.  Provider-owned health plans and accountable care organizations will be well positioned because of their ability to coordinate care, support and services across a network of providers.
  • Pharmaceutical and life sciences companies will gain new customers under the law's insurance expansion.  However, states will have considerable flexibility in defining the requirements that participating plans must follow when designing their benefit structure and formularies.  More limited formularies could furtherup use of generic medications.  Manufacturers will have to account for state-level variation when developing strategies.
  • Employers must decide whether it will be more economically feasible to offer coverage to their employees or pay a penalty and direct workers to exchanges. Tax benefits and competitive factors are among the considerations.

“Thriving in this new market won’t be easy,” the report notes. “Insurers will continue their battle to keep a balance of healthy and sick members to limit adverse selection. Providers and insurers will face clear challenges in serving a new customer base with a demographic profile and health needs that differ from today’s insured population in meaningful ways.”

Nevertheless, HRI analysts insist that “unbound by public exchange requirements, private exchanges will have the flexibility to experiment with different approaches — and adapt rapidly to meet consumer demands.”

“They may lead the way in the quality of customer experience,” the report concludes.

Find the full report and complementary graphics here.