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3 Ways Health Exchanges Can Lower Premiums

By Gregory A. Freeman  
   January 10, 2017

The high premiums that have hindered acceptance of Obamacare plans can be reduced if certain steps are taken by insurers.

The high insurance premiums that took the shine off so many health plans from the insurance marketplaces created under the Patient Protection and Affordable Care Act could be lowered with the right policies, according to a report from the Urban Institute.

To be effective, policies must address three major reasons why premiums are higher than consumers can tolerate:

1. Adverse selection: Sicker people who are more expensive to cover may be more likely to enroll in ACA non-group insurance than their healthier and less expensive counterparts.

2. Lack of competition: Premiums tend to be higher when an insurer or provider group has a monopoly or near monopoly in its area.

3. Inadequate risk adjustment: Moving premium dollars from insurers with low-cost enrollees to insurers with high-cost enrollees.

Premiums are not high in all areas, according to the report, which received funding from the Robert Wood Johnson Foundation. And the reasons for high premiums can differ, as should the remedies.

Insurance Plans Accept Mandate on its Way Out

The 2017 premium increases are largely an adjustment to compensate for prior underpricing, said Kathy Hempstead of the Robert Wood Johnson Foundation, in a media statement.

"There are important geographical differences, and not all markets are performing equally well, but there are signs that financial performance is improving for many carriers," she said.

Recommended Solutions
The report recommends a series of remedies that policymakers could enact to help mitigate high premiums, applied as appropriate in different communities:

  • More financial assistance for consumers to purchase insurance while simultaneously increasing the penalty for not having coverage to alleviate adverse selection.

  • A reduction in the number of limited and short-term health plan options, which generally cost less and appeal to healthier customers, the report states.

  • A cap on the amount doctors and hospitals are paid for services could help rein in premiums in areas with high insurer or provider concentration.

New policies slated to kick in this year improve the ACA's risk adjustment mechanism, and other changes have been proposed for 2018. These changes could result in lower premiums, but face an uncertain future in the Trump administration, the report acknowledges.

Gregory A. Freeman is a contributing writer for HealthLeaders.

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