An article from the Wall Street Journal, dated 11/02/2015.

Health Law’s Strains Show

As third enrollment season kicks off, insurers move to curb costs, boost premiums

The Affordable Care Act’s third open enrollment season got under way, with a new array of health plans that show how the law’s influence is starting to transform the insurance industry.

Sunday’s kickoff appeared to go relatively smoothly, with little evidence of technical glitches at as consumers started to shop for coverage that will take effect in 2016. But this enrollment season will be a challenge as the Obama administration and insurers try to lure holdouts who haven’t previously signed up for ACA coverage, even as premiums for many products appear set to rise sharply. Premiums for a type of plan that is closely watched as a signal of consumer costs—the second-lowest-priced insurance product in the law’s “silver” metal tier—will increase 7.5% on average across the roughly three dozen states that rely on marketplace, according to the administration.

Behind those shifts is a tough business reality: Under the ACA, insurers have seen an influx of new membership in individual plans and in Medicaid plans they administer for the government, expanding the industry’s total U.S. revenue to $743 billion in 2014, the year the law’s biggest changes took effect, from $641 billion the year before, according to a new analysis by consulting firm McKinsey & Co.

But much of that growth has been unprofitable. Health insurers lost a total of $2.5 billion, or on average $163 per consumer enrolled, in the individual market in 2014, McKinsey found. A number are also expecting to lose money on their marketplace business for 2015.

Now, a lot of insurers are recalibrating their approach for 2016, with changes visible at all levels of the industry— from pricing to product design.

At big insurer Aetna Inc., the evidence of the law’s impact could be spotted last month in a Phoenix classroom, where Aetna was training a class of customer-service hires who will support a suite of reengineered ACA marketplace plans dubbed “Leap.” Those products will have a different service approach, with fewer automated phone prompts and a completely new staff that is supposed to spend more time solving customers’ problems.

A trainee stood at a whiteboard, drawing stick figures with speech bubbles in a Pictionary- style game. “Conversation?” asked a class member. “Transition of care?” ventured another. The teacher gave the answer: The new reps had to keep commitments to consumers. That meant calling them back if needed.

The health law remade the individual market, forcing insurers to sell plans to all consumers and banning them from charging rates based on health conditions. Insurers struggled to predict their costs, and many didn’t set rates high enough to cover the care of those they enrolled.

Now, a number of insurance startups are shutting down, including many of the law’s 23 cooperative insurers, which won’t have products for this fall’s open enrollment shoppers.

For larger companies, the losses were survivable. But rate increases create a risk that consumers may get sticker shock despite the availability of federal subsidies that reduce the cost sharply for many.

Peter Wainwright, 63 years old, who retired from a telecommunications job, currently has a plan bought on California’s ACA marketplace. He and his wife don’t get a subsidy and pay about $2,230 a month, and the rate is increasing for 2016. “Everything has gone up,” said Mr. Wainwright, of Half Moon Bay, Calif.

The administration’s goal is to have about 10 million people with paid-up coverage on the state and federal ACA exchanges by the end of 2016. The nonpartisan Congressional Budget Office earlier this year estimated that at least 20 million people would buy policies under the law for 2016 coverage.

Still, insurers believe over time that the overall consumer- oriented market is likely to grow, including burgeoning private Medicare plans, and approaches pioneered there are expected to spread into the larger employer- based business.

“The ACA is an accelerant, or a catalyst” for changes, said Brad Wilson, chief executive of Blue Cross and Blue Shield of North Carolina. “The market is, and will continue to evolve to, a consumer-centric, retail type.”

The nonprofit, which lost money on its exchange business in 2014 and expects to do so again in 2015, sought a roughly 35% rate increase for next year and is making other moves to rein in costs, including calling enrollees who have frequent emergency-room visits to encourage other options such as primary-care doctors.

Many insurers are tweaking their health-care-provider networks. Health Care Service Corp., which owns Blue Cross and Blue Shield plans in five states, lost money on its 2014 exchange business. For next year, it will stop offering preferred- provider-organization plans on the exchange inTexas, while in the Illinois marketplace it will no longer sell the PPO that featured the biggest selection of hospitals and doctors.

The insurer is developing plans like one it will sell in the Chicago area next year, with a network that, for most care, includes just one large health system. Individual consumers often don’t need a huge variety of providers, and care most about low premiums, said Steve Hamman, a senior vice president at Health Care Service.

With its Leap plans, Aetna is using many of the approaches that are gaining momentum in the industry. The Leap plans, which will roll out in four states this fall but are expected to be more widely available next year, rest on different technology than other Aetna products, including a new claims-processing platform, the company says.

“It’s a mammoth change in the offering, with everything being brand-new,” said Dijuana Lewis, an Aetna executive vice president. Aetna said this week it would likely lose money in 2015 on its exchange business.

The Leap insurance will include limited networks: In Arizona, it will be built around just one provider, the large Banner Health system. The Leap plans also aim to be easy to understand. For instance, they generally won’t include coinsurance, in which a consumer pays a percentage of the cost of a medical service, a concept many people find confusing. —Stephanie Armour contributed to this article.