Colorado insurance officials like what they see so far. Multiple studies of initial premium filings actually show declines in some regions, which is essentially unheard of in health care, and only slight growth in others. Still, they caution that those numbers aren’t yet final and will ultimately reflect market forces more than state policy.
“In general, what drives the rates this year will be what has driven rates in previous years -- health-care costs, utilization, provider contract rates, the relative health of a community and competition,” said Vince Plymell, a spokesman with the state insurance commissioner’s office.
Like in Colorado, much of the data on 2015 health premiums for plans on online exchanges created by the Affordable Care Act (ACA) is incomplete or preliminary. It's only available so far in about a third of states, many of which are enthusiastic adopters of ACA reforms. But a few things are certain: There’s wide variability, which is typical; and increases in exchange plans, on average, are modest compared to what’s been typical in health insurance on the private market.
The question for states is how much control they actually have over premium increases from year to year. Market forces that are largely beyond the control of public officials are clearly a key driver of premium prices, but policy experts, lawmakers and insurers also suggest there are a number of state-based decisions that affect premium changes. Some of those policies have research to back them up, while others are still mostly theories.
Even for states that take major steps toward keeping premiums down, it’s hard to predict which direction premiums will go or trace them to any one policy, said Caroline Pearson, vice president at the consulting firm Avalere Health. To Pearson, policy levers aren’t as big of a deal as competitive forces, such as the entrance of non-profit plans that have intentionally priced themselves lower than bigger players that were then pressured to follow suit in New York and Maine. “You can’t point to one variable and say, ‘That’s why the rates are going up and down,’” she said.
But here are some areas where public policy might make a difference.
Rate review refers to the annual process when insurers file their premium rates with a state insurance commission. Fifteen states use the more passive “file-and-use” method, which gives officials little authority to mandate changes. Thirty-five states have some form of “prior approval,” which gives them some authority (how much varies by state) to refuse rates that seem unjustified.
“The kind of division of states into prior approval versus file-and-use is not really a perfect system for seeing how much a state is actually active,” said Cynthia Cox, a senior policy analyst at Kaiser Family Foundation. For example, California -- a file-and-use state -- has used the threat of public hearings and other “public relations” moves to lower premiums without having the authority to actually refuse premium increases.
Rate review has been shown to lower rates modestly -- by about one-fifth from the initial request, on average, according to a Kaiser study. But research quantifying the difference in effectiveness between prior approval and file-and-use isn’t widely available, according to the Nicholas Petris Center on Health Care Markets and Consumer Welfare at the University of California-Berkeley, which is currently working to quantify it.
The effect of Medicaid expansion on premiums remains unproven, but some groups predict it will lower -- or at least moderate -- price increases. The RAND Corporation, a think tank, estimated that premiums in some states will rise up to 10 percent as a direct result of their refusal to expand Medicaid because more low-income people who are typically less healthy will instead enroll in private plans on the exchanges with the help of government subsidies, making the exchange plans more costly.
Avalere's Pearson, however, doubts whether states that expanded Medicaid are seeing lower premiums on the private side because a majority of new exchange enrollees in many states are lower-income people earning below 250 percent of the federal poverty line, or $29,175 for an individual. The difference between a lower-income person in a private plan and one in a Medicaid plan isn't likely to have a big impact on premiums, she argued. Expansion gives coverage to people earning up to 138 percent of the federal poverty line, or $15,856 for an individual.
Policymakers in some states that expanded Medicaid through the private market are getting good early news about premiums, which they say is in large part because of their expansion plan. Arkansas was the first state to propose putting the newly expanded Medicaid population in the private market using federal money to cover the costs of plans purchased on the exchange. Arkansas state Sen. David Sanders, who was instrumental in passing the privatized model of expansion, argues the surge of 200,000 people into the private market has fueled the kind of competition that spurred a projected 2-percent average decrease in premiums.
But while the new private-market enrollees are low-income people, the state may have been able to keep costs down with a screening process that keeps sicker populations (about 10 percent of recipients) in traditional Medicaid, out of the private system. “What you’re left with is 90 percent of a young, healthy population that really, all they need is coverage,” Sanders said.
It’s not clear how many people nationwide have renewed health plans that don’t comply with coverage and cost restrictions under the Affordable Care Act, but about half of all states are allowing consumers to extend those plans into 2015. The Obama administration, accused of misleading the public about being able to keep old plans under the new system, first announced states could allow insurers to extend those plans last year. Leaving the decision up to states has led to wide variation, with states like Florida seeing the renewal of several hundred thousand plans; while states that refused, such as Washington, haven’t seen any.
Private insurers are partly blaming this extension for price increases, arguing they’re keeping people who already had insurance and were likely healthier out of the exchange risk pools. Iowa could be one place where this has become a problem, because the insurance giant Wellmark has extended plans while staying out of the exchanges, leaving only two competing plans in the state's health exchange and low enrollment overall. But no one knows for sure how much impact the extension of older plans is having or whether it's having any effect at all. In Colorado, about 100,000 people renewed old policies and are allowed to do so again, but the state has seen positive signs so far with lower premium growth.
Colorado insurers credit the state’s more hands-off approach to regulating certain aspects of its exchange for those positive signs. Some states run exchanges that are considered “active purchasers,” which means insurers have to bid to enter, meet certain price levels, possibly provide more data around certain quality metrics, agree to meet network specifications and other requirements.
Colorado is among 10 more independently run exchanges that operate as “clearinghouses,” which leave greater flexibility to plans around benefit design, networks and payment models. “By not having heavy price hand, because we have 10 different carriers on the individual exchange, then market forces really do apply,” said Marc Reece, the associate director of the Colorado Association of Health Plans. “I think in the long run that will keep prices down but also allow more innovation on the plan level because they don’t have to meet the same box for every plan to be on the exchange."
A more laissez-faire approach in Michigan -- also a Medicaid expansion state -- has helped spur efforts by some plans to substantially reduce prices in an attempt to seize some business from insurance giant Blue Cross Blue Shield, which has around three quarters of the market, said Marianne Udow-Phillips, director of the Center for Healthcare Research and Transformation at the University of Michigan. While Blue Cross is requesting a rate increase of more than 9 percent, others are dropping rates by as much as 21 percent, she said. “I think this is just purely the market at work,” she said.
That’s not to say active-purchaser states -- which include California and New York -- aren’t also seeing rate reductions. In New York, for instance, many people carrying the lowest-priced silver plan (insurance packages have color ratings based on their level of cost sharing) will see premium decreases in 2015, according to a preliminary review from McKinsey and Company.
There can also be downsides to a more hands-off approach in terms of benefits or consumer protections. It's not clear at this point how Michigan insurers are lowering their rates so dramatically. But proponents of freer markets argue transparency and flexibility minimize risks to consumers while providing benefits. “With the amount of pricing transparency in our exchange, you simply won’t get the membership” if you’re not competitive, Reece said.