From tracking ACA rate filings across multiple cycles, the 2027 filing season presents a qualitatively different pricing problem than any prior year. The 2026 cycle introduced the subsidy-cliff morbidity adjustment; 2027 layers a second, independent enrollment disruption on top of an already deteriorated risk pool. OBBBA’s federal Medicaid work requirements will disenroll millions of expansion enrollees beginning January 2027, and some share of those disenrollees will enter the individual market. Pricing actuaries must now model two simultaneous population movements: continued attrition from subsidy expiration and new inflows from Medicaid churn, each with distinct morbidity profiles and price-sensitivity characteristics.
The challenge is compounded by the CMS 2027 NBPP’s recalibration of HHS-HCC risk adjustment models using 2021–2023 EDGE data, a calibration window spanning COVID-era utilization suppression and the post-pandemic rebound. Actuaries building 2027 rates are pricing into a risk-transfer mechanism whose coefficients were estimated on a population that may bear little resemblance to the 2027 enrollee mix.
The Scale of the Enrollment Shock
OBBBA establishes federal work requirements for Medicaid expansion enrollees ages 19 through 64, mandating 80 hours per month of qualifying activities (employment, job training, or community service) to maintain eligibility. States must verify eligibility every six months, doubled from the prior annual cycle, and HHS must publish an interim final rule by June 2026. The affected population is substantial: over 20 million people were enrolled in Medicaid expansion across 41 states and DC as of June 2024, representing 31% of total enrollment in expansion states (KFF).
Three independent estimates frame the scale of coverage losses. CBO projects 11.8 million additional uninsured by 2034 from the full bill, with 4.8 million attributable specifically to work requirements and work-requirement reductions to federal Medicaid outlays totaling $326–344 billion over the decade. KFF’s analysis estimates 7.8 million Medicaid coverage losses from the bill’s combined provisions (work requirements, administrative burden increases, and FMAP reductions), plus 8.2 million ACA marketplace losses, yielding a total of 16 million additional uninsured. The Urban Institute models three implementation scenarios for 2028: Medicaid expansion enrollment declines of 4.9 million (high mitigation), 8.0 million (medium), and 10.1 million (low mitigation), with 19% to 37% of people who already work nevertheless losing coverage due to documentation barriers.
These losses compound with the enhanced premium tax credit expiration that already reshaped the 2026 risk pool. Average marketplace premium payments increased 114% (approximately $1,016 per year) when enhanced credits expired, and 2026 ACA enrollment fell roughly 5% to 22 million enrollees (KFF). For 2027 filings, pricing actuaries must stack the Medicaid churn inflow on top of an individual market that has already contracted and deteriorated in morbidity.
Step 1: Estimating Relative Morbidity of Medicaid Churn Enrollees
The first modeling step is characterizing the health profile of Medicaid expansion enrollees who will transition to the individual market. This requires differentiating between the full disenrolled population and the subset that actually purchases exchange coverage.
Medicaid expansion enrollees carry a distinct morbidity profile. Health Affairs Scholar data shows that over one-third of expansion adults have at least one diagnosed health condition, with mental health and substance use disorders (12.2%), pulmonary and respiratory conditions (9.2%), and endocrine and metabolic disorders (8.6%) as the most prevalent categories. Nearly half have a chronic condition, and expansion adults use prescription drugs at higher rates than other Medicaid adults.
The critical actuarial question is whether the Medicaid churn enrollees entering the individual market will be sicker or healthier than the existing ACA population. Experience from the 2023–2024 Medicaid unwinding offers a partial analogue. During that process, over 25 million people were disenrolled, and those who transitioned to marketplace coverage skewed toward higher acuity. Wakely Consulting found that demographic-normalized relative risk in the individual market rose over 8% when comparing the 2023/2024 period to 2025, suggesting that Medicaid-to-marketplace transitions introduced higher-cost members. Centene and Molina reported that their post-unwinding risk pools were “less healthy now compared to before redeterminations began.”
For the 2027 morbidity adjustment, actuaries should estimate Medicaid churn enrollee risk scores relative to the current individual market average. Using HHS-HCC risk scores from EDGE server data and the unwinding experience as a calibration anchor, a reasonable starting range is a 1.10 to 1.30 relative morbidity factor for Medicaid churn enrollees entering the individual market, compared to the existing average enrollee.
Step 2: Building the Transition Matrix
Not all Medicaid disenrollees will purchase individual-market coverage. The transition matrix projects what share of the disenrolled population flows into each destination: individual market, employer-sponsored coverage, other public programs, or uninsured.
Premium elasticity research provides the demand-side inputs. NBER estimates show a plan-specific enrollment elasticity of –1.7, meaning a 1% premium increase reduces enrollment by 1.7%. Young adults exhibit considerably higher price sensitivity than older age groups, and low-income individuals (the core Medicaid expansion demographic) show more elastic demand. With post-subsidy premiums averaging 75% or more above pre-expiration levels, and no enhanced credits to cushion the transition, the price barrier for Medicaid churn enrollees is severe.
A plausible transition matrix for 7.8 million Medicaid coverage losses:
| Destination | Low Estimate | Mid Estimate | High Estimate |
|---|---|---|---|
| Individual market (exchange) | 10% (780K) | 15% (1.17M) | 20% (1.56M) |
| Employer-sponsored coverage | 15% (1.17M) | 20% (1.56M) | 25% (1.95M) |
| Other public programs | 5% (390K) | 5% (390K) | 5% (390K) |
| Uninsured | 60% (4.68M) | 50% (3.90M) | 40% (3.12M) |
The adverse selection dynamic within this matrix is the pricing problem. Healthier former Medicaid enrollees, those with lower expected medical costs and higher price sensitivity, are more likely to forgo coverage at unsubsidized premium levels. Sicker enrollees, those with chronic conditions requiring ongoing treatment, will be more motivated to purchase coverage regardless of price. This produces a selection effect within the churn population itself: the subset entering the individual market carries higher average acuity than the full disenrolled group. The 1.10–1.30 relative morbidity factor from Step 1 applies to this self-selected subset, not the full 7.8 million.
Step 3: Credibility-Weighted Blending
With the churn volume and morbidity estimates in hand, the next step is blending projected 2027 enrollment composition with historical experience data. Under ASOP No. 25, the actuary must determine how much weight to assign to the 2024–2025 individual-market experience versus the projected 2027 enrollment shift.
The blending formula follows a standard credibility-weighted approach. Let Mhist represent the historical experience-period morbidity (2024–2025 individual market PMPM), and Mchurn represent the projected morbidity of the Medicaid churn cohort. If p represents the projected share of 2027 enrollment from Medicaid churn, the blended morbidity factor is:
M2027 = (1 – p) × Mhist + p × Mchurn
For a plan with 100,000 current enrollees that projects 10,000 Medicaid churn entrants (p = 9.1%) with a relative morbidity factor of 1.20, the morbidity adjustment is:
M2027 = (0.909 × 1.00) + (0.091 × 1.20) = 1.018
This yields an incremental 1.8% morbidity load solely from Medicaid churn, before accounting for ongoing subsidy-cliff attrition. Because limited credible data exists for this specific legislative discontinuity, actuaries should apply a credibility complement using the 2023–2024 unwinding experience as a benchmark and disclose the reliance on professional judgment per ASOP No. 25.
Step 4: Stress-Testing Under Recalibrated Risk Adjustment
The 2027 HHS-HCC risk adjustment model introduces a compounding uncertainty. CMS proposed recalibrating the model using 2021, 2022, and 2023 benefit-year EDGE data (Federal Register, February 11, 2026). This calibration window captures pandemic-era utilization suppression in 2021, rebound patterns in 2022, and the early Medicaid unwinding influx in 2023. Whether these historical coefficients remain predictive for a 2027 market shaped by OBBBA churn and subsidy expiration is an open question.
The risk adjustment transfer formula calculates each plan’s payment or charge based on the difference between its average risk score and the statewide average, multiplied by the statewide average premium. When Medicaid churn enrollees with higher-than-average risk scores enter the market, the statewide average risk score rises. Plans that enroll a disproportionate share of churn members (geographic concentration, network alignment with Medicaid managed care organizations) will see their transfer receipts increase, while plans retaining healthier-than-average books face larger transfer charges.
Georgetown CHIR reported 2,850 comments on the proposed 2027 NBPP, four times the volume received for the 2026 rule. ACAP warned that expanding catastrophic plan eligibility could “pull healthy consumers out of the main risk pool,” and the California DOI expects “meaningful migration of younger, healthier enrollees” to catastrophic plans. If catastrophic migration concentrates healthy members outside the non-catastrophic risk pool, the morbidity load from Medicaid churn falls on a smaller base of remaining metal-tier enrollment.
Worked Example: Silver Plan Morbidity Load Sensitivity
Consider a hypothetical Silver plan in an expansion state with the following baseline assumptions for 2027 rate development:
| Parameter | Value |
|---|---|
| Base period PMPM (2025) | $485 |
| Medical trend (2025 to 2027) | 1.175 (8.5% annualized) |
| Subsidy-cliff morbidity load (carryover from 2026) | 1.040 |
| Administrative expense and profit load | 1.18 |
Without Medicaid churn, the indicated PMPM is $485 × 1.175 × 1.040 × 1.18 = $699. The sensitivity analysis applies incremental morbidity loads for three Medicaid churn scenarios:
| Churn Scenario | Churn Share of Enrollment | Relative Morbidity | Incremental Load | Indicated PMPM | Change vs. Baseline |
|---|---|---|---|---|---|
| Low (5% churn share) | 5% | 1.15 | +0.8% | $704 | +$5 |
| Mid (10% churn share) | 10% | 1.20 | +2.0% | $713 | +$14 |
| High (15% churn share) | 15% | 1.30 | +4.5% | $731 | +$32 |
The 5% to 15% morbidity load range reflects the uncertainty in both the transition matrix (how many churn enrollees purchase exchange coverage) and the relative morbidity estimate (how sick those enrollees are compared to the existing pool). At the high end, the Medicaid churn load alone adds $32 PMPM, or roughly $384 annually per member, on top of the subsidy-cliff and baseline trend adjustments.
Oliver Wyman’s broader 2027 market analysis projects overall morbidity deterioration of 2.9% to 6.5% across the individual market, with enrollment declining 17% to 26% below 2025 levels. The mid-range of the worked example (2.0% incremental churn load) falls within this range, suggesting it captures a material share but not the entirety of the projected morbidity shift, consistent with Medicaid churn being one of several concurrent deterioration drivers.
The Six-Month Redetermination Wrinkle
OBBBA’s requirement that states redetermine Medicaid eligibility every six months, rather than annually, introduces a complication for claims runout and IBNR assumptions. Enrollees cycling between Medicaid and the individual market every six months create incomplete exposure periods. A member who enrolls in January, is redetermined ineligible in June, purchases exchange coverage in July, then re-enrolls in Medicaid in January 2028 generates a six-month exposure period with truncated claims development.
For pricing actuaries, this churn pattern means that 2027 experience data for Medicaid-origin enrollees will have systematically shorter exposure periods and correspondingly immature claims development. IBNR factors calibrated to 12-month continuous enrollment assumptions will understimate incurred claims for this cohort. Actuaries should consider developing separate completion factors for members identified as Medicaid churn (using prior coverage indicators from marketplace applications) and applying those factors to the churn sub-population before blending into the overall experience.
Why This Matters for Pricing Actuaries
The 2027 filing cycle is the first where health pricing actuaries must simultaneously model two distinct, legislatively driven enrollment shocks: subsidy expiration (reducing the pool from the top, as healthier members leave) and Medicaid work requirements (adding to the pool from the bottom, as higher-acuity members enter). The interaction between these two forces is non-linear: subsidy-cliff attrition removes price-sensitive, lower-acuity members, concentrating remaining enrollment among sicker individuals; Medicaid churn then adds a second cohort whose morbidity exceeds the already-deteriorated market average.
The risk adjustment recalibration amplifies the uncertainty. Coefficients estimated on 2021–2023 data reflect a market that existed before either disruption took full effect. Whether the recalibrated transfer formula adequately compensates plans enrolling disproportionate shares of Medicaid churn members depends on how well pandemic-era EDGE data predicts 2027 cost patterns for a population that did not exist in the calibration dataset.
Actuaries building 2027 rates should document their Medicaid churn morbidity assumptions as a distinct, identifiable loading within the rate development, separate from baseline trend and subsidy-cliff adjustments. State regulators reviewing these filings will need a clear analytical trail connecting the legislative provisions, the transition matrix assumptions, the relative morbidity estimates, and the resulting premium impact. The Academy of Actuaries has noted that 2026 individual and small group risk pools were “likely to deteriorate,” and 2027 compounds that trajectory with a second, concurrent source of adverse selection.
Further Reading
- How Actuaries Model Adverse Selection in ACA 2026 Rate Filings – The four-step methodology for constructing the subsidy-cliff morbidity adjustment that serves as the baseline on which the 2027 Medicaid churn load is layered.
- ACA 2027 Rate Filings: Pricing Actuaries Face a GLP-1 Credibility Problem – A parallel pricing challenge in the same 2027 filing cycle, covering ASOP No. 25 credibility procedures applied to pharmacy trend acceleration.
- ACA 2027 Proposed Rule: Actuaries Model a 2M Enrollment Drop – The CMS 2027 NBPP provisions that layer additional enrollment contraction on top of the subsidy and Medicaid shocks analyzed here.
- ACA Marketplace 2026: Subsidy Cliff, Enrollment Shock, and Actuarial Implications – Foundational analysis of enhanced PTC expiration, enrollment trajectories, and state-level responses that set up the 2027 compounding problem.
- Healthcare Cost Trends 2026: Forces Reshaping Medical Spending – The baseline medical trend assumptions that underpin the non-selection component of 2027 rate development.
Sources
- KFF: How Will OBBBA Affect ACA, Medicaid, and the Uninsured Rate – Projection of 7.8 million Medicaid coverage losses and 16 million total uninsured from combined ACA and Medicaid provisions.
- Urban Institute: Projected Reductions in Medicaid Expansion Enrollment Under OBBBA – Three-scenario modeling of expansion enrollment declines ranging from 4.9 to 10.1 million by 2028.
- CBO via House Budget Committee: OBBBA Medicaid Provisions – 11.8 million additional uninsured by 2034, with 4.8 million from work requirements and $326–344 billion in federal Medicaid spending reductions.
- CMS: HHS Notice of Benefit and Payment Parameters for 2027 Proposed Rule – Recalibration of HHS-HCC risk adjustment models using 2021–2023 EDGE data, $0.20 PMPM user fee.
- Georgetown CHIR: Stakeholder Perspectives on 2027 NBPP (Insurers and Brokers) – Analysis of 2,850 comments, with insurer concerns about catastrophic plan migration and risk pool deterioration.
- Oliver Wyman: How ACA Market Shifts Will Redefine 2027 Plan Development – 2027 morbidity deterioration projection of 2.9–6.5% with enrollment 17–26% below 2025 levels.
- Wakely Consulting: 2025 Individual Market Risk Pool Considerations – Demographic-normalized relative risk increase of over 8% following Medicaid unwinding transitions.
- Health Affairs Scholar: Diagnosed Conditions Among Medicaid Expansion Adults – Prevalence data showing one-third of expansion adults with at least one diagnosed condition.
- American Academy of Actuaries: Drivers of 2026 Premium Changes – Risk pool deterioration assessment and dual-rate submission analysis for the 2026 filing cycle.
- Congressional Research Service: OBBBA Health Coverage Summary (R48569) – Legislative analysis of work requirements, FMAP reductions, and coverage impact projections.