Consequences of the ACA Legislation on the Health Insurance Exchanges
Health Insurers The individual mandate’s low penalty, IRS’s lack of enforcement of the penalty, retention of grandfathered plans for 2 million people, ACA rules that increased premiums, and imposition of cross subsidies on younger adults reduced much of the demand for insurance and decreased the size of the risk pool. Further, about 7 million people preferred to purchase ACA-compliant individual insur- ance outside the exchanges. Consequently, the exchange risk pools became more heavily weighted with costlier enrollees. Premiums, based on insurers’ expectations of a larger risk pool with a lower average risk level, failed to cover the medical costs of enrollees.
Insurers incurred large financial losses, and many exited the exchanges. Competition among insurers decreased as many geographic areas had few remaining insurers. Many exchanges were left with only one insurer. Sharply increased premiums after 2014 reflected insurers’ realization that the risk pools would be more costly.
