JANUARY

Individual enrollment at sufficient levels and
a balanced risk pool
Sufficient enrollment levels.
At the overall market level, enrollment must be high enough to reduce random fluctuations
in claims from year to year. In states that fund health insurance marketplace operations
through user fees, market-wide enrollment must be sufficient to generate adequate user
fee revenues. At the insurer level, enrollment must be high enough to achieve stability
and predictability of claims and to benefit from economies of scale, so that per-enrollee
administrative costs are low relative to average claims.
A balanced risk pool.
Because the ACA prohibits health plans from denying coverage or charging higher
premiums based on pre-existing health conditions, having affordable premiums depends on
enrolling enough healthy individuals over which the costs of the less-healthy individuals can
be spread. Enrollment of only individuals with high health care needs, typically referred to as
adverse selection, can produce unsustainable upward premium spirals. Attracting healthier
individuals (e.g., through the ACA individual mandate and premiums subsidies) is needed
to keep premiums more affordable and stable.
A stable regulatory environment that facilitates fair and
sufficient insurer competition
Consistent rules and regulations applied to competing health plans.
Health plans competing to enroll the same participants must operate under the same rules.
If one set of plans operates under rules that are more advantageous to healthy individuals,
then those individuals will migrate to those plans; less-healthy individuals will migrate to
the plans more advantageous to them. In other words, plans that have rules more amenable
to higher-risk individuals will suffer from adverse selection. In the absence of an effective
risk adjustment program that includes all plans, upward premium spirals could result,
threatening the viability of the plans more advantageous to higher-risk individuals.
Stable effective regulatory environment.
The rules and regulations governing the health insurance market need to be announced with
sufficient lead time, relatively stable over time, and not overly burdensome in terms of costs
or restrictions on innovation.
AMERICAN ACADEMY OF ACTUARIES 5