On the Wrong Side of Wall Street?

It looks like I am zigging when the smart money is zagging. I’ve written that Obamacare will struggle to reach the Administration’s target of 9 million in 2015. At last week’s “Wall Street Comes to Washington” roundtable, sell-side analysts Carl McDonald of Citi and Ralph Giacobbe of Credit Suisse predicted that 2015 enrollment in Obamacare exchanges will reach 11 million:

But the analysts noted continuing challenges for insurers, from improving what McDonald called a “pretty poor” first-year effort to inform consumers about which doctors and hospitals are in their networks, to controlling spending as high-priced drugs hit the market.

Insurers are also projecting that this year’s enrollees will be younger and healthier than those who signed on in 2014, when the average age was 41, McDonald said.  That was a problem for insurers who based this year’s premium rates on the expectation they would see younger customers, he said.

That last paragraph helps explain why the average Obamacare premium has not skyrocketed for 2015. Health insurers which are newly entering exchanges for 2015 are looking to skim the cream. The older, sicker beneficiaries are already signed up; and new competitors hope to attract younger, healthier ones.

Will this business strategy work? It is early days yet. In rating areas where new entrants are dropping premiums by double digits, healthy people might be attracted into the mix. Another open question is: “Will incumbent beneficiaries stick with this year’s plans or will they shop around?”

The Administration and Obamacare advocates are encouraging people to shop around for new policies that will lower their costs. However, new competitors must be counting on the fact that sick Obamacare beneficiaries know they were burnt last year by narrow networks and limited access to services, and will not simply jump onto the lowest premium for 2015. Further, inertia is a powerful force, and has been observed in the Medicare Part D drug benefit.

Comments (3)

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  1. Daphne says:

    I am sure shopping around and changing your health insurance is about as fun as changing your cable provider!

  2. John R. Graham says:

    At least, if you “cut the cord” to cable, the government does not fine/penalize/tax you!

  3. Jake Sanders says:

    The individual Cable Mandate will be the downfall of us all.