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Fitch: Enrollment a Key to ACA Risk for Health Insurers

January 28, 2014

NEW YORK --(BUSINESS WIRE)-- The importance of the Affordable Care Act's (ACA) risk-sharing programs to health insurers' credit quality will be meaningfully influenced by enrollment trends, according to Fitch Ratings. This will be especially true for those insurers offering individual and small group products on state or Health and Human Services Department (HHS) managed health insurance exchanges. The ACA includes three risk-sharing programs that became effective in 2014 and are designed to reduce various forms of adverse selection risk, stabilize premium rates, and promote exchange-based competition. The programs are funded by industry participants and Fitch believes that they are intended to be budget-neutral from a federal and state government perspective. HHS indicated in a recent report that through Dec. 28, 2013 , 24% of exchange enrollees were 18-34 years old. In a report published Dec. 17, 2013 , the Kaiser Foundation Family estimated the 18-34 years old portion of potential individual health insurance enrollees at 40%. Fitch considers exchange enrollees aged 18-34 important to exchange-sourced insurance's profitability because of their presumed lower costs relative to older enrollees. Fitch views healthy 18-34-year-old individuals eligible for exchange enrollment as more likely than older, less healthy individuals to delay their enrollment and notes that the 2014 enrollment period remains open until March 31, 2014 . Fitch also notes that the HHS report indicates that eight times as many 18-34 year olds enrolled in an exchange-sponsored health insurance plan in December than in October and November. Fitch views the difference between the age distribution assumptions made when insurers set premium rates on exchange sourced products and the actual age distribution as a key determinant of the financial results those products will generate. The extent to which these pricing assumptions skew younger than actual experience increases the potential for health insurers to experience adverse financial results from exchange-sourced business and increases the importance of risk sharing programs built into the ACA. For additional information on this topic, please see our comment titled, 'Affordable Care Act's Risk Sharing Programs: Importance Influenced by Enrollment Demographics,' which is available on our Website at . Additional information is available on . The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at . All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research : Affordable Care Act's Risk-Sharing Programs (Importance Influenced by Enrollment Demographics) ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS . IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE ' WWW.FITCHRATINGS.COM '. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Ratings Mark Rouck , +1 312-368-2085 Senior Director Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60603 or Media Relations: Brian Bertsch , +1 212-908-0549 Source: Fitch Ratings

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