13% Jump in California Health Premiums Could Reverberate Throughout U.S.
California’s Obamacare premiums will jump 13.2 percent on average next year, a sharp increase that is likely to reverberate nationwide in an election year.
The Covered California exchange had won plaudits by negotiating 4 percent average rate increases in its first two years. But that feat couldn’t be repeated for 2017, as overall medical costs continue to climb and two federal programs that help insurers with expensive claims are set to expire this year.
The increase announced Tuesday comes as major insurers around the country seek even bigger rate hikes for open enrollment this fall, and the presidential candidates clash over the future of President Barack Obama’s landmark health law.
Some health-policy experts were surprised by the magnitude of the increase in California. Others said it was inevitable the rates would catch up to the rest of the country after insurers determined their coverage had been priced too low.
“This increase is a little higher than expected, since California seemed to have a healthier population than many other states,” said Kathy Hempstead, director of health coverage issues at the Robert Wood Johnson Foundation.
Consumer advocates expressed disappointment, noting that rising health insurance premiums keep taking a bigger bite out of the average person’s paycheck. Overall, they said, the rate hike shows that policymakers and insurance company executives still have a lot of work to do in tackling the high cost of health care.
“While these rates hikes aren’t as bad as the annual double-digit increases before the Affordable Care Act, that’s not much comfort to consumers who don’t see their paychecks increase by the same percentage,” said Anthony Wright, executive director of Health Access, a consumer advocacy group.
Covered California’s two largest health insurers, which cover more than half of its 1.4 million enrollees, drove the statewide increase.
Blue Shield of California said its premiums were going up 19.9 percent, the highest statewide increase. Anthem Inc., the nation’s second largest health insurer, said it had an average increase of 17.2 percent in its Covered California plans. HMO giant Kaiser Permanente, in contrast, posted an average increase of 6 percent.
All of the rates are subject to state regulatory review and public comment. But neither of the state’s insurance regulators, the Department of Managed Health Care and Insurance Commissioner Dave Jones, has the authority to block the hikes.
Critics of the health law, including Republican presidential candidate Donald Trump, have been quick to seize on rising costs as further proof that the Affordable Care Act is failing the average consumer and warrants repeal.
The Obama administration counters that federal subsidies spare most consumers from the full impact of the premium increases, and the health law enables people to shop around for a better deal.
The results in California mirror what’s been unfolding across the country. Last week, consulting firm Avalere Health found that the average rate increase being sought for widely sold silver plans was 11 percent across 14 states.
These rate increases apply to people who purchase their own coverage in the individual market, not the majority of Americans who get their health insurance through work or government programs such as Medicare and Medicaid.
Peter Lee, Covered California’s executive director, said prices for 2017 reflect the rising cost of care, not efforts by insurers to pad their bottom line. He said the average profit margin for the 11 insurers in the exchange is 1.5 percent.
“We kicked the tires hard,” Lee said. “This isn’t about health plans making big buckets of money. This is about health-care costs rising.”
Two federal programs that have helped health insurers offset costly medical claims and cover sick patients in general end this year. They were intended as a temporary cushion for insurers, who are now required to accept all applicants regardless of their medical histories.
Health insurers in California said their rates reflect the ever-increasing cost of care, particularly for expensive specialty drugs. For the first time since the Obamacare marketplaces opened in 2014, the companies said they had the benefit of detailed data on exchange customers and their medical claims in calculating proposed rates.
Blue Shield said its exchange members have been using more services than expected, including hospital care, primary care and emergency-room visits. The San Francisco-based insurer said its prescription drug costs for exchange members were up 15 percent this year compared to a year ago.
The company said that its 2 percent average rate increase for this year was too low. “In 2016, we are seeing that the cost of care is exceeding the premiums we are collecting,” said Blue Shield spokeswoman Mia Campitelli.
Anthem Blue Cross said it, too, was seeing a broad-based uptick in demand for medical care as well as higher drug costs. These factors “underscore the additional work that needs to be done to moderate the growth in health care costs,” Anthem spokesman Darrel Ng said.
Kaiser Permanente, which treats patients at its own hospitals and clinics, struck a more upbeat tone, calling medical inflation “moderate.”
Insurers have also complained about lax rules for special enrollment outside the designated signup period that have allowed some people to game the system by waiting until they need care before enrolling.
Blue Shield said its policyholders who joined during special enrollment used up to 30 percent more medical services than people who signed up during the regular period. Federal and state officials say they have tightened the rules to address these industrywide complaints.
Among the 19 regions served by Covered California, the one encompassing Monterey, San Benito and Santa Cruz counties had by far the largest average increase in premiums — 28.6 percent. The smallest, 8.4 percent, was in the region that includes San Joaquin, Stanislaus, Merced, Mariposa and Tulare counties.
In Los Angeles County, which spans two different rating regions, the increases run from 13.9 percent to 16.4 percent. Premiums in San Francisco are slated to rise nearly 15 percent on average.
Cost-conscious consumers like David Arnson worry about the impact on their pocketbook.
Arnson, 57, of Los Angeles, qualifies for a federal subsidy and pays just $32 each month for a Molina Healthcare policy he purchased through Covered California. He relies on the coverage to help pay for treatment for ankle and knee problems.
Arnson, who works at a record store and plays in a band, said he worries about his monthly premium increasing next year.
“I make a marginal living. Like anything, you want to pay as little as possible,” he said. “I need healthcare — it is at the top of my pyramid of necessities.”
State Sen. Ted Gaines (R-El Dorado), a critic of the health law, said the dramatic rate increase in California shows that the Affordable Care Act lacks any meaningful provisions to contain costs.
“Now we have a system, in my opinion, that is more bureaucratic with increasing costs,” Gaines said. “It’s yet another tax on the middle class.”
The higher rates in California may spur more consumers to switch health plans. Lee said nearly 80 percent of consumers could pay less or limit their rate increase to 5 percent if they shopped around for lower-priced plans.
But only 14 percent of Covered California enrollees who returned this year chose a different insurer. On the federal exchange, 43 percent of people switched plans in 2016.
The proliferation of narrow networks can make shopping complicated since certain doctors and hospitals may only be available through one or two insurers, and provider directories are often inaccurate.
Many consumer advocates in California had hoped that UnitedHealth Group Inc. would become a formidable competitor on the state-run exchange. But United, the nation’s largest health insurer, is leaving Covered California after just one year of minimal participation — part of a broader pullback nationwide after the company posted heavy losses on individual plans.
The top four insurers in Covered California — Blue Shield, Anthem, Kaiser Permanente and Health Net – account for more than 90 percent of enrollment. There are at least two competing health plans in every region of the state and more than 90 percent of consumers have at least three to choose from, according to the exchange.
New York start-up Oscar Insurance Corp. will expand into three new counties next year — San Francisco, San Mateo and Santa Clara. This year it has sold policies through Covered California in Los Angeles and Orange Counties.
Jamie Court, president of Consumer Watchdog in Santa Monica, said state lawmakers should revisit rate regulation in the wake of these “outrageous premium hikes.” California voters rejected a ballot measure in 2014 on health insurance rate regulation, which insurers spent millions to help defeat.
That initiative, spearheaded by Consumer Watchdog, would have given the insurance commissioner veto power over rate increases that were deemed excessive.
Since 2014, California has benefited from having a healthier mix of enrollees than other states. One reason for that is state officials defied the Obama administration by requiring insurers participating in Covered California to cancel existing individual policies at the end of 2013.
That unpopular decision quickly moved people into coverage that fully complied with the health law and created one giant risk pool for rating purposes. Those previously insured customers were generally thought to be healthier, because at the time they had purchased their policies, insurers could deny coverage to people with pre-existing conditions.
But that positive effect may be wearing off as people get sick over time or leave the individual market for other coverage including employer-sponsored plans, , experts say.
The expansion of coverage under the Affordable Care Act has driven the percentage of uninsured Californians to a record low.
The proportion of Californians lacking health insurance was 8.1 percent at the end of last year, down from 17 percent in 2013, before the coverage-expanding provisions of Obamacare began, federal data show.
The expansion of Medi-Cal, the state’s Medicaid program for lower-income residents, accounts for a significant part of that reduction. Since January 2014, nearly 5 million people have joined the Medi-Cal rolls, bringing total enrollment to 13.4 million — about one-third of the state’s population.
Anna Gorman contributed to this report.