ACA Individual Market Enrollment Cliff: Wakely Models 47 to 57 Percent Contraction and the Morbidity Consequences for 2027 Rate Filings

The 47 to 57 percent range Wakely Consulting Group published in May 2026 is not a probability scenario around a point estimate. It is the base case for what happens to ACA individual market enrollment when the two largest policy shocks in the market's history land in the same rate filing cycle. The enhanced premium tax credits expired at year-end 2025, producing an immediate 58% increase in average net premiums and a first-premium non-payment rate in January 2026 of 14%. H.R. 1, the House budget reconciliation bill, then layered provisions targeting subsidy eligibility below 100% of the federal poverty level and immigration-based enrollment pathways on top of the already-contracted market. Wakely's steady-state projection of the combined effect: 11.2 to 13.6 million people exiting the individual market, against a baseline of roughly 23.8 million, with the remaining pool carrying a 2.9 to 6.5 percent higher morbidity index and generating 7 to 11.5 percent additional gross premium pressure before any medical trend is applied. For health actuaries currently filing 2027 rates, these are the parameters that have replaced the standard morbidity adjustment factor with a legislative contingency calculation, in filings where the actuarially defensible assumption range has widened beyond anything the ACA market has previously required.

Modeling individual market risk pool dynamics across the 2014 ACA launch cycle and the 2021 ARPA subsidy expansion put the Wakely-modeled 5% morbidity spike in context: it is consistent with the adverse selection patterns that actuaries observed when subsidy cliffs hit mid-year in 2014, with one critical difference. The 2026 cohort is exiting from a much larger and more embedded enrollment base of 23-plus million people. The actuarial swing per lost member is larger when the exiting cohort's morbidity is well below the pool mean, and the 2026 exit data confirms that is exactly what is happening.

86 Percent First-Premium Payment and What It Signals About Risk Pool Composition

Wakely's "Who Paid and Who Stayed" analysis, published in April 2026, drew on data from 75 carriers representing more than 80% of the ACA individual market across 30-plus states, covering approximately 238 million member-months of 2025 experience. The analysis compared the health care utilization of January 2026 enrollees who paid their first premium against those who did not. The morbidity differential was 10.2%. That gap is not symmetric by design. Higher-morbidity enrollees, those managing chronic conditions, scheduled procedures, or ongoing prescriptions, have a strong financial incentive to pay premiums even when the net cost rises sharply, because their expected claims exceed their annual premium regardless of the subsidy structure. Lower-morbidity enrollees, the young and relatively healthy who enrolled when subsidies reduced their effective premium to near-zero, walk when the price increases become real, because the expected benefit does not justify the new cost.

The January 2026 86% payment rate, against the 90-plus percent rates typical in prior years, meant that 14% of plan selections did not effectuate. State-based exchanges retained higher payment rates on average than federally facilitated exchanges, tracking the difference in average premium increases: SBEs ran 14% average increases for 2026 while FFEs ran 27%. Payment rates ranged from 81.9% at the bottom quartile of states to 93.6% at the top, a 12-point spread that translates directly into a 12-point variance in first-year morbidity deterioration severity across state markets. The states with the highest non-payment rates, concentrated in federally facilitated markets with the steepest premium increases, were accumulating the worst risk pool composition problems heading into their 2027 rate filing seasons.

The metal-tier composition shift operating in parallel constitutes a second adverse selection signal within the enrolled population. Bronze plans jumped from 30% to 40% of plan selections between 2025 and 2026, and silver fell from 57% to 43%, a record low. Among the enrollees who stayed on exchange and migrated from silver to bronze, the actuarial math is direct: higher deductibles and cost-sharing structures in bronze plans suppress utilization among healthy enrollees while providing catastrophic tail protection that sick enrollees need regardless of deductible level. The average ACA marketplace deductible rose 37% to $3,786, the steepest single-year increase since the ACA launched in 2014. This metal-tier migration is a within-pool adverse selection mechanism operating simultaneously with the between-pool morbidity shift from enrollee exit.

The Adverse Selection Spiral: Morbidity Mechanics in a Contracting Market

The 2.9 to 6.5 percent morbidity increase Wakely models for 2026 builds from three compounding mechanisms. First, exit of healthier enrollees raises the average morbidity of the remaining pool by the ratio of their absence, measured against their demographic morbidity relativities. Second, the within-pool shift toward bronze plans concentrates catastrophic utilization among those who remain on exchange. Third, and most consequential for pricing actuaries: the premium increase required to cover the worsened risk pool generates another round of exit among the next tier of price-sensitive healthy enrollees, further worsening the pool heading into the following rating period.

The enrollment exit data from KFF's 2026 tracking decomposition shows how demographic morbidity relativities amplify the actuarial impact. Young adults ages 18 to 34 accounted for 542,000 of the plan-selection decline in 2026, an 8% drop in that age cohort, representing 46% of total plan selection losses even though young adults are roughly 30% of enrolled population. The ACA's 3:1 age band compresses the full morbidity gradient, but within that band, the age-sex morbidity curve steepens sharply above 45. When the 18-to-34 cohort exits proportionately faster than older cohorts, the remaining pool's age-weighted average morbidity index rises even without any change in the health status of retained members. This is the demographic relativity mechanism, and it runs automatically when exit is concentrated in the youngest, lowest-morbidity bands.

The income-band distribution of exits adds a second layer. Enrollees above 400% of the federal poverty level, who had no subsidy eligibility under the pre-ARP structure, made up 48% of total plan selection losses in 2026 despite representing only 3% of 2025 enrollment. The mechanism is the subsidy cliff: those individuals were paying full unsubsidized premiums before ARPA, then received subsidies during the expansion, then lost them again when ARPA expired. Their exit is rational and immediate. Within the subsidy-eligible population, exits at 400% to 600% FPL were concentrated among enrollees who lost all APTC eligibility when the cliff returned, while those below 200% FPL, who retained meaningful premium tax credits, showed more stable retention. The income-band pattern shapes the residual morbidity in ways that a single aggregate exit percentage obscures.

The recursive dynamic that pricing actuaries call the adverse selection spiral runs as follows. Higher 2026 premiums cause disproportionate lapse among healthier members, producing a 2026 risk pool with 2.9 to 6.5 percent higher morbidity. The 2027 rate actuary projects higher trend from a worse base period, which requires a higher 2027 premium. Higher 2027 premiums cause another round of exit among the remaining healthier members, worsening the 2028 pool. The spiral terminates only when the premium reaches a level that produces lapse predominantly among higher-morbidity enrollees, because their expected claims exceed the premium level, or when carriers exit the market entirely, concentrating the remaining population into fewer risk pools with even less competitive pressure to constrain premium growth.

Two reference points from prior market cycles help calibrate the morbidity adjustment. The 2014 ACA launch produced a first-year adverse selection dynamic where enrollees selected against the pool, documented in CMS risk adjustment data showing higher-than-expected average risk scores in early enrollment cohorts. The 2016 premium correction cycle, when United, Aetna, and Humana exited multiple markets, produced single-year premium increases of 20% to 25% in affected states. The current contraction differs from both prior episodes in that the exit starts from a 23-million-person base built over a decade of market development, with embedded carrier administrative infrastructure and actuarial pricing experience that did not exist in 2014. The morbidity swing per lost member is larger when the departure cohort is far below the pool mean, which is the case when disproportionate exit concentrates in the youngest and healthiest segments of a large, mature market.

H.R. 1 Provisions: The Second Leg of the Enrollment Cliff

Wakely's May 2026 white paper, commissioned by Covered California and drawing on State-Based Marketplace data representing roughly 50% of SBM enrollment, modeled the H.R. 1 impact separately before combining with the EPTC expiry effects. H.R. 1 alone is projected to reduce individual market enrollment by 22 to 27 percent, representing 5.2 to 6.4 million people. The provisions generating the largest actuarial impact fall into three categories, each with a distinct mechanism for affecting risk pool composition.

The first is the elimination of premium tax credit eligibility for lawfully present immigrants with incomes below 100% of the federal poverty level. Under pre-H.R. 1 law, lawfully present immigrants ineligible for Medicaid due to their immigration status could access ACA premium tax credits as a statutory allowance. Section 71302 of H.R. 1 removes that allowance. The Congressional Budget Office estimated the provision would reduce federal marketplace spending by $69.8 billion over ten years and increase the number of uninsured by 900,000 by 2034. The actuarial consequence for ACA pricing actuaries is not limited to the loss of those specific enrollees: the health services research literature consistently documents that lawfully present immigrants, on average, use fewer healthcare services per capita than demographically comparable native-born populations, reflecting lower rates of chronic disease prevalence, higher rates of labor-force participation in physically active occupations, and structural barriers to healthcare access that suppress utilization below what the morbidity level of the population would otherwise produce. Their disproportionate exit worsens the residual pool morbidity by more than their enrollment share alone would predict.

The second category is the structural tightening of subsidy eligibility verification and the elimination of special enrollment pathways that expanded access during the COVID public health emergency. H.R. 1 tightens income documentation requirements and closes special enrollment periods that allowed mid-year plan selection outside the standard open enrollment window. For pricing actuaries, these changes affect both enrollment timing within the year and the demographic composition of who can enter the market. Tighter verification requirements disproportionately screen out the lower-income end of the subsidy-eligible population, which tends to have more variable income documentation, and the elimination of SEP pathways reduces the ability of individuals with sudden coverage needs to enroll when their health status most acutely motivates enrollment.

The third category involves the downstream effects on cost-sharing reduction funding and silver plan actuarial value. Silver plan CSR variations at 73%, 87%, and 94% actuarial value serve the subsidy-eligible population with incomes at 100% to 250% FPL. As H.R. 1 provisions reduce that population's eligibility for premium tax credits and Medicaid transitions push additional enrollees out of coverage, the denominator of CSR-eligible enrollees shrinks, affecting the silver plan cross-subsidy embedded in the premium structure and the distribution of actuarial value across the remaining enrolled pool.

In non-Medicaid expansion states, the combined EPTC expiry and H.R. 1 effects are projected to reduce enrollment by 53 to 64%, per Wakely's analysis. These are the states where the coverage continuum between Medicaid and marketplace is most disrupted by both sets of provisions simultaneously, because the population below 100% FPL has no alternative Medicaid pathway and loses ACA eligibility under the new provisions. As documented in the Medicaid churn and morbidity analysis, the 7.8 million projected Medicaid disenrollees from OBBBA provisions compound the individual market morbidity situation by introducing a transitional population with different utilization patterns into the exchange risk pool at the same time the existing pool is contracting.

Building 2027 Rates Into a Scenario Range

The standard ACA rate development model presumes that the target-period risk pool is compositionally similar enough to the experience-period pool that trend factors applied to historical per-member-per-month claims produce reliable prospective projections. That assumption fails when 17 to 26 percent of the enrolled population exits in a single year and those exits are concentrated in the lower-morbidity demographic segments. The 2027 rate filing cycle presents a credibility problem with no precise prior analog: the 2025 experience base reflects a subsidy-rich, broadly enrolled population; the 2026 base period reflects a year of structural exit and metal-tier migration; and the 2027 target period depends on Senate action on H.R. 1 provisions whose final form remains unresolved as carriers file their rate submissions.

The response visible in the carrier actuarial memoranda submitted to state regulators through SERFF in early-deadline states is scenario-based rate development. Actuaries are constructing three parallel projections: a base case in which H.R. 1 does not pass or passes without the most disruptive ACA provisions, leaving the market in a post-EPTC-expiry equilibrium; a central case in which partial H.R. 1 provisions take effect, including subsidy tightening but not full immigration eligibility removal; and an adverse case in which full H.R. 1 enactment layers on top of the EPTC-expired market. The premium gap between the base and adverse cases for a given carrier can span 10 to 15 percentage points, which creates both a regulatory documentation challenge and an adverse selection risk in the market itself.

State insurance departments are receiving rate filings that document this scenario structure, and several have issued pre-filing guidance acknowledging that the standard actuarial certification framework does not fully account for legislative contingencies of this magnitude. ASOP No. 25 (Credibility Procedures) and ASOP No. 45 (The Use of Health Status Based Risk Adjustment Methodologies) provide the theoretical framework for morbidity adjustment and credibility procedures, but neither was written for a market where the primary driver of rate change is unresolved legislation rather than statistical variance in a stable population. Actuaries are filing a point estimate within their scenario range and providing scenario sensitivity documentation as a supplement to the actuarial memorandum, a structurally different approach than the standard single-assumption actuarial certification.

The adverse selection feedback mechanism then shapes the carrier-level point estimate choice within the scenario range. A carrier that files at the adverse-case premium for its market risks losing price-sensitive healthy members to competitors filing at the base-case assumption, worsening its own 2027 risk pool without any change in the underlying legislative outcome. A carrier that files at the base-case premium risks a 2027 loss ratio well above target if H.R. 1 passes in full. The asymmetry is not symmetric in consequence: an adverse-case surprise produces a multi-year loss ratio recovery problem and potential exit from the market, while filing at the high end and winning a favorable legislative outcome leaves the carrier paying risk adjustment transfers to lower-filing competitors who retained the healthier enrollees. The risk adjustment system, operating on a zero-sum principle across the market, converts within-market adverse selection decisions into direct premium transfer obligations among carriers.

Carrier Response Options and Their Risk Pool Consequences

Geographic contraction is the most visible carrier response in the 2026 filing data, and the carrier-exit pattern across states with early 2027 rate requests confirms the pattern is accelerating. Oregon dropped from six carriers to four after Providence and PacificSource exited. Maine dropped from five to four after Mending Health withdrew. Illinois will see Cigna exit individual coverage for its 2,885 enrolled members. When a carrier exits a county or state market, the residual risk pool is concentrated into fewer competitors, reducing both competitive pressure on pricing and the portfolio effect that helps carriers smooth year-to-year morbidity variance through risk diversification. As analyzed in the carrier exit framework for shrinking risk pools, a three-carrier market where one carrier holds 70% of enrollment does not benefit from the statistical regularity that stabilizes claims in markets with eight to ten competitive options.

Metal-tier rationalization, the second carrier response, involves withdrawing gold plan options in markets where gold enrollment is thin enough to produce actuarially unstable experience. This rationalization has a non-intuitive morbidity consequence. Gold plan enrollees, who face lower deductibles and cost-sharing, tend to have higher average morbidity and healthcare utilization: their out-of-pocket structure does not suppress utilization, which is precisely why higher-morbidity enrollees select gold plans. When carriers withdraw gold plans, gold enrollees must migrate to silver or exit the market. Those who migrate to silver shift to higher cost-sharing plans where their utilization patterns then interact differently with the silver pool's actuarial value, and those who exit remove a higher-morbidity cohort from the covered population and shift their claims into hospital uncompensated care and emergency department budgets.

Benefit design standardization, the third response, involves narrowing network configurations, standardizing formularies across plan options, and reducing the number of unique plan designs offered in a given market. Each simplification reduces the scope for within-carrier adverse selection, where high-morbidity enrollees systematically identify and select the most generous benefit options within a carrier's product portfolio. But standardization carries its own risk pool consequence: reduced plan variety makes carrier offerings less differentiated from competitors, which increases price sensitivity as the primary enrollment driver and amplifies the adverse selection dynamic when any carrier's pricing diverges from the market.

Each response option interacts with the risk adjustment transfer mechanism in ways that compound the difficulty. Risk adjustment transfers operate on a zero-sum principle: the total transfer from lower-risk carriers to higher-risk carriers nets to zero across each state market in each rating period. As carriers exit and the market concentrates, the variance between the remaining carriers' risk pools typically widens, because the departing carriers often held the middle-risk segments of the market that damped variance between the highest- and lowest-risk remaining competitors. Larger variance produces larger transfer magnitudes, which increases the financial uncertainty around any individual carrier's projected transfer position and further complicates 2027 rate development. The 2027 risk adjustment recalibration analysis documents how this mechanism plays out in the specific carrier-level risk score distribution shift produced by the 2026 enrollment contraction.

Why This Matters for Health Actuaries

The 2027 ACA individual market filing cycle is the most actuarially complex individual market environment since the ACA's inaugural years, and arguably more demanding: the 2014 market opened from near-zero enrollment without an experience base to misapply, while the 2027 filing must project from an experience base that underwent a structural morbidity shift in 2026, toward a target population shaped by legislation that may not have taken its final form before rate submissions are certified. Actuaries filing 2027 rates are not making a statistical projection. They are making a legislative contingency judgment that will be embedded in a certified actuarial filing.

The filing obligation remains unchanged: produce an actuarially supportable rate that covers expected 2027 claims with reasonable confidence, documented in an actuarial memorandum that a state insurance commissioner can evaluate and defend. When the primary uncertainty driver is legislative rather than statistical, that obligation creates tension with the actuarial certification framework that ASOP No. 25 and ASOP No. 45 were designed to support. Regulators in several states are accepting explicit scenario documentation alongside the standard memorandum, but the certification itself still attaches to a point estimate. Actuaries should document their legislative assumption explicitly, quantify the sensitivity of the rate to the H.R. 1 passage scenario, and preserve that documentation as part of the actuarial work product for the regulatory review cycle. The 2027 rate filing data now available from eight states shows that carrier-level morbidity adjustments are ranging from 3% to 19.5%, a spread that reflects exactly this scenario-range uncertainty being expressed as different point estimates by different actuaries in the same filing environment.

The compounding effect of MHPAEA mental health parity enforcement changes and cost-sharing reduction structure shifts, analyzed in the MHPAEA regulatory pressure context, adds a further dimension to the 2027 rate development challenge. Health actuaries working in the individual market are simultaneously managing adverse selection spiral mechanics, legislative scenario uncertainty, Medicaid churn enrollment composition shifts, and changing federal behavioral health coverage requirements. The Wakely model gives the enrollment cliff range; the premium range of 7 to 11.5 percent additional pressure from morbidity and attrition gives the rate impact; and the obligation to file a defensible single-point rate within those bounds defines the actuarial task. Carriers that anchor their 2027 morbidity assumption to 2025 experience without an explicit compositional adjustment are not being conservative. In a market where the Wakely data and the effectuation patterns from 75 carriers make clear that the 2025 pool no longer represents the 2027 target population, an unadjusted historical morbidity assumption is an underestimate of prospective claim cost. The adverse-selection mechanics of this contraction are not speculative; they are visible in the January 2026 premium payment data, the metal-tier migration, and the age-band decomposition of enrollment exits. The only question for 2027 rate development is how much additional legislative shock H.R. 1 will add to an individual market already under structural morbidity pressure.