GAO Examines Claims Costs, Participation in ACA Marketplace

Federal auditors examined the claims costs of payers participating in exchanges, and the factors driving exchange participation, premiums, and plan design.

Claims costs, pricing strategies, competition, state policies, and federal funding fluctuations were key factors health insurers considered when determining whether to expand or withdraw from the Affordable Care Act's Marketplace, a federal study shows.

The Government Accountability Office sought to determine the claims costs of payers participating in exchanges through the early years of the rollout, and the factors driving the payers' changes in exchange participation, premiums, and plan design.

To do so, GAO auditors reviewed previous studies on marketplace plans, payer data on claims costs, patient mix, and premiums, and interviewed nine marketplace payers and other stakeholders operating in California, Florida, Massachusetts, Minnesota, and Mississippi.

The study found that:

• Claims costs for individual plans were higher than expected in the early years of the ACA. From 2014 to 2015, the growth in per member per month claims costs averaged 13% nationally. However, some payers saw cost claims swings ranging from a 67% decrease to a 26% increase that year.
  
  These cost swings were attributed to enrollees being sicker than expected, higher costs for services, and federal policies that included special enrollment periods that payer feared would be abused.
   

• Claims costs grew from 2014 to 2017. Payers blamed the volatility on large changes in the number and health of enrollees each year.
  
  Specifically, the payers interviewed by GAO all had a greater than 50% increase or decrease in enrollment in at least one year between 2014 and 2017. Six payers had enrollment increases of more than 100% in at least one of these years.
   
• Average monthly claims costs varied significantly across payers in the same state. Often claims costs varied by more than $100 per enrollee, a significant variance given that median per member per month claims costs were about $300.

Several factors were weighed when payers decided whether or not to expand or reduce participation in the marketplace plans, including:

• Claims costs. Payers said claims costs drove decisions on participation, premiums, and plan design. They noted that increasing claims costs drove premium increases.
   
• Federal funding changes. Payers blamed reduced participation and higher premiums on the phase-out of federal programs that helped issuers mitigate risk, including payments and adjustments for issuers with higher cost enrollees, and the ending of federal cost-sharing for some enrollees.
   
• State requirements and funding. Payers noted that some state policies reduced participation and increased premiums, while other state policies minimized premium increases or variations in benefit design.

Most payers told GAO that their improved financial performance in the marketplace was due more to premium hikes than to decreases in claims costs.   

The longer payers participated in the exchanges, the more claims data they were able to access, which allowed for more accurate projections on costs and premiums.

"Specifically, two selected issuers said 2017 was the first year that multiple years of claims data associated with the new market conditions were available to set premiums for the next year," GAO said.