CONFIDENTIAL

What will the new Exchange consumer look like?

Among the major changes the ACA is apt to engender is a marked shift in consumer purchasing behavior. McKinsey Advanced Healthcare Analytics (MAHA) projects that through 2019, 40 to 60 million Americans could potentially switch coverage categories,1 with this change playing out heterogeneously across the country. The Individual market is poised to experience the strongest expansion, with growth likely between ~90% and 185%2potentially resulting in ~24-36 million members nationally. MAHA research indicates that as many as 76-83% of these consumers are likely to purchase coverage through the new state and federal Exchanges3.
INDIVIDUAL MARKET GROWTH MAY BE ~90-185% WITH A LARGE NUMBER OF PARTICIPANTS LIKELY TO PURCHASE ON EXCHANGE

Excludes a sizeable number of additional individuals who will continue current source of coverage but will switch carriers
2

Reflects MAHA standard scenario range; growth is relative to 2019 no reform scenario

3 Based on findings from consumers participating in a MAHA survey through August 2012. Actual Exchange penetration may be lower due to level of promotions, consumer attitudes, exchange implementation, etc.

As a result of these shifts, the Individual market is apt to be fundamentally different from todayit will likely be higher risk, lower income, older, and more racially diverse.
THE INDIVIDUAL MARKET WILL LIKELY BE HIGHER RISK, LOWER INCOME, OLDER AND MORE RACIALLY DIVERSE POST-REFORM

MAHA tools designed to simulate the purchasing behavior of Exchange consumers suggest that income will be the greatest predictor of on- vs. off-Exchange purchasing. Once income is taken into account, most demographic factors (e.g., age, gender, and ethnicity) do not predict site of purchase, except for prior coverage. For instance, previously uninsured individuals are slightly more likely than insured individuals with similar incomes to purchase through the Exchanges, and existing Individual market consumers are more likely to make off-Exchange purchases. Thus, the on- and off-Exchange populations are likely to look similar, except for those factors driven by income distribution and prior coverage.

INCOME IS LIKELY TO BE THE MOST MEANINGFUL DIFFERENCE BETWEEN ON- AND OFF- EXCHANGE POPULATIONS

MAHA research also suggests that all these factors will play out very differently from state to state (primarily due to existing Medicaid eligibility rules, individual market regulations, and level of state government support or promotion), and will vary at the local market level (largely because of market demographics and consumer attitudes). Local market analysis will therefore be crucial for understanding intra- and inter-state differencesand for capturing this new, sizeable market.
THERE WILL BE INTER- AND INTRA-STATE VARIATIONS IN THE LEVEL OF INDIVIDUAL MARKET GROWTH

LOCAL MARKET VARIATION IS ILLUSTRATED BY THE RANGE OF INDIVIDUAL MARKET SHARE INCREASE OF 2.9 TO 8.6 PERCENTAGE POINTS ACROSS COUNTIES IN CA