Despite the mechanisms in place designed to sustain the exchanges, insurers suffer adverse selection because they must now accept all policy applicants, including those with pre-existing conditions and those who decide to purchase insurance after they are diagnosed with a severe illness. Adverse selection is further exacerbated because insurers have limited information on a policyholder’s medical history and are prohibited from adjusting premiums according to actual risk. This situation makes it difficult for insurers to set necessary rates. Since the exchanges were first implemented in 2014 under the ACA, carriers selling government-approved policies now have a full year’s worth of claims data to identify key factors that have caused medical claims to exceed premium payments.
The ACA focuses on expanding coverage through a massive redistribution of wealth in the amount of $1.2 trillion over the next decade. It’s clear that low-income individuals and those with chronic conditions benefit the most from the law’s sliding scale subsidies, but market-oriented tactics can make health insurance (and more importantly medical care) more accessible and affordable and can lessen the risk for insurers to experience adverse selection.


Spotlight 471 – Adverse Selection: Examining the impact on North Carolina's Health Insurance Exchange