PPACA auto-renewal bad for newcomer carriersNews added by Benefits Pro on July 7, 2014

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By Kathryn Mayer

PPACA’s new auto-renewal feature is a “mixed bag” for carriers, Moody’s said Thursday, but it’s likely to have a negative effect on carriers who are just beginning to participate in the exchanges.

The new feature is mostly good news for carriers that were able to enroll a sizable number of individuals this year. But it’s bad news for carriers that were planning to participate in the exchange market for the first time in 2015, or were planning to "gain significant membership with either more competitive pricing or expanding their participation on the exchanges," Moody’s said in a new report.

“For [those] insurers, especially those looking to enter the exchanges for the first time, the announcement means that a significant number of potential customers will have been removed from the marketplace,” wrote Steve Zaharuk, Moody’s senior vice president.

Last week, the administration announced the new auto-enrollment feature, which means that the majority of those who enrolled in plans through the Patient Protection and Affordable Care Act’s exchanges will be auto-enrolled in the same health plan they selected in 2014 this coming enrollment period. Consumers who are automatically re-enrolled in PPACA plans will still have the option of changing plans during open enrollment, which runs Nov. 15 through Feb. 15, according to the Department of Health and Human Services.

There is also another risk with the auto-enrollment feature, Moody’s says: health claim risk. Healthy enrollees who see that prices are rising on their plan may jump back on the exchange and shop for cheaper coverage, which would result in sicker patients retaining with a carrier.

“With a majority of the 2015 policies that have already been filed indicating high single- to double-digit premium rate increases, some individuals may shun the automatic renewal offer and choose to go back to the exchange to find the lowest price option available to them,” Zaharuk said. “We believe that those shunning automatic renewal would tend to be healthier individuals who are not under a doctor’s care or in the middle of a course of treatment, since a change in plan would likely require a change in provider networks.”

Still, he notes, it's positive for those larger carriers that have successfully attracted a substantial number of exchange polices.

"Without the automatic renewal provision, the pricing risks would have been even more uncertain, since in effect all policies would have been up for grabs to other competitors," Zaharuk said. "With the ability to retain a sizable block of their business, administrative costs will be more predictable, and policyholder inertia will likely result in retaining many healthier, less risky individuals."

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