Great question! Think of it like this. You buy the first house in a neighborhood. If each neighbor is well behaved and keeps up their homes, your happiness level is good! But if the neighbors are unruly, leave the homes and yards dirty and unkempt, and have regular visits from the police, your happiness level declines. Adverse selection works the same way. If more unhealthy people buy insurance the happiness level of the service providers and insurers goes way down, and costs go way up. If more healthy people buy, than insurers and providers are happy, and costs go down. (theoretically). If you would like more information, please contact me, I'm happy to help. Thanks for asking!
In simple terms adverse selection means that a health insurance company enrolls a population mix where the claims being incurred by some enrollees exceed the total premiums being paid in by all enrollees. If Insurance Company X finds itself paying out $1 billion a year in claims while receiving only $800 million in premium it is experiencing adverse selection and losing $200 million that year.
Adverse selection can occur in a variety of ways but it all comes down to the simple math I described above. Preliminary enrollment results from the recently concluded open enrollment period point towards a rather broad based adverse selection in the enrollment across the nation. The enrollment mix, while trending somewhat better towards the end, still indicates that enrollees tended to be more females than males (women consume more health care than men over the course of their lives), older than the general population (older persons consume more health care than younger people), and have more chronic health problems than the general population (for example, the number of enrollees requiring expensive HIV medications was substantially above the level of the general population). We appear to have reached approximately 25% enrollment in the "young & healthy" demographic when the initial actuarial projections were that the program enrollment mix needed to be around 40% for things to work out.
While it is too early to project what this will mean for rates in 2015, and the impact will vary from state to state, I am already seeing industry reports that are projects substantial double digit rate increases in most states and possible triple digit increases in some states. States such as New York which had already largely decimated their individual insurance markets and had some of the highest insurance rates in the nation to begin with will probably be impacted less because of the high starting point they were already at. Many states in the south, mid-west and western U.S. which generally had much lower health insurance rates prior to ObamaCare implementation will likely be the areas who will experience the largest increases. Here in Tennessee I am already beginning to see increases for small group plans in the 20% to 60% range as ObamaCare compliant plan designs are being phased in.
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Adverse selection can occur in a variety of ways but it all comes down to the simple math I described above. Preliminary enrollment results from the recently concluded open enrollment period point towards a rather broad based adverse selection in the enrollment across the nation. The enrollment mix, while trending somewhat better towards the end, still indicates that enrollees tended to be more females than males (women consume more health care than men over the course of their lives), older than the general population (older persons consume more health care than younger people), and have more chronic health problems than the general population (for example, the number of enrollees requiring expensive HIV medications was substantially above the level of the general population). We appear to have reached approximately 25% enrollment in the "young & healthy" demographic when the initial actuarial projections were that the program enrollment mix needed to be around 40% for things to work out.
While it is too early to project what this will mean for rates in 2015, and the impact will vary from state to state, I am already seeing industry reports that are projects substantial double digit rate increases in most states and possible triple digit increases in some states. States such as New York which had already largely decimated their individual insurance markets and had some of the highest insurance rates in the nation to begin with will probably be impacted less because of the high starting point they were already at. Many states in the south, mid-west and western U.S. which generally had much lower health insurance rates prior to ObamaCare implementation will likely be the areas who will experience the largest increases. Here in Tennessee I am already beginning to see increases for small group plans in the 20% to 60% range as ObamaCare compliant plan designs are being phased in.