15Nov2011
Author
SOA Blog
Category
Healthcare
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Lessons learned from anti-selection

by Cecil Bykerk, 2008-09 SOA President; President, CDBykerk Consulting

Recently the Connecticut Pre-Existing Condition Insurance Plan changed its rating structure to a one- size-fits-all approach.  Reports on this change indicated that some older individuals would see reductions ranging up to 57 percent while individuals under the age of 45 would see increases.  It will be interesting to see what happens to enrollment as well as resulting financial experience.

Back in 1996 and 1997, New York State revised its individual marketplace by requiring companies writing individual major medical policies to change its pricing approach to a uni-gender/uni-age approach, i.e., one-size-fits-all in addition to requiring guarantee issue.  This change applied to existing business as well as new business. 

In the company at which I worked at that time, while older individuals saw their rates go down significantly, younger individuals saw their rates go up by as much as 185 percent.  Yes, some saw their rates rise to 2.85 times what they were paying before.  You don’t have to imagine too hard as to what happened to the inforce block of policies.  Many of the younger individuals no longer saw the value of keeping their policies or couldn’t afford them.  In one year’s time, the average age of the policyholders went up seven to eight years as opposed to the one year that had elapsed.  A year later the average age jumped another two years.  In a stable block of business it might actually be anticipated that the average age would stay constant or change very little as new individuals join and others leave particularly when they become Medicare-eligible.

As a footnote, my company was able to remain in New York for only a few years mostly by selling high-deductible policies where the premium impact was reduced, at least with respect to absolute dollar amounts.  When the state forced all new policies issued to have a $1,000 deductible, we decided to withdraw from new sales.  There was essentially no way to control anti-selection.  People could buy when they chose to.

As we look ahead to 2014, it is important that we consider the lessons we learned from the past.  Unless individuals are required to purchase major medical insurance, anti-selection will be devastating.  Such a requirement must have effective enforcement as well.

Individuals who lived through the New York experience as health actuaries need to speak up.

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