Some analysts who have looked at health insurers’ proposed premiums for next year predict major increases for policies sold on state and federal health exchanges. Others say it’s too soon to tell. One thing is clear: There’s a battle brewing behind the scenes to keep plans affordable for consumers.
Now the Obama administration is weighing in, asking state insurance regulators to take a closer look at rate requests before granting them. Under the Affordable Care Act, state agencies largely retain the right to regulate premiums in their states. So far only a handful have finalized premiums for the coming year, for which enrollment begins in November.
In a letter sent separately this week to insurance commissioners in every state and Washington D.C., Kevin Counihan, the CEO of the federal health exchange, healthcare.gov, said recent data suggest that rates should not go up as much as some insurers are proposing for plans sold to individuals on the health exchanges. In Maryland, for example, the dominant insurer on the exchange, CareFirst, is asking for a rate increase of 30 percent for some of its plans. In Kansas, Blue Cross and Blue Shield of Kansas is seeking increases averaging 37 percent.
Still, wrote Counihan, “many issuers are reporting a decline in pent-up demand for services,” which would lead to lower premiums. The letter also said that health care costs are not growing as fast as some had predicted, “even accounting for rapid growth in pharmaceutical costs.”
Several recent studies bolster Counihan’s case.
An analysis of proposed rates by the consulting firm Avalere Health found that for a 50-year old non-smoker, premiums for the lowest-cost silver plan will rise by an average of 4.5 percent in the eight states they studied. Average premiums for the second-lowest silver plan will rise by only 1 percent. (Most analyses of premiums look at silver-level plans because they have been by far the most popular, attracting more than two-thirds of those who have signed up using the exchanges.)
A separate analysis by the Kaiser Family Foundation found similar results: increases should average about 4.4 percent for the two least expensive silver plans in the 10 major cities it studied. (Kaiser Health News is an editorially independent project of the Foundation.)
Both analyses, however, warn that consumers may only be able to avoid increases by changing insurers. “In these markets, consumers will need to balance continuity of care with lower monthly premiums when comparing their health insurance options,” said Avalere Senior Vice President Caroline Pearson.
But insurance industry consultant and frequent Obamacare critic Robert Laszewski says that forcing people to change plans in order to avoid huge increases is just one problem of many. “This is a debacle. This is a blow-up. This is a mess,” he said. “There’s big trouble in Obamacare land. The biggest carriers are losing their shirts” and thus seeking the biggest rate increases.
Why the disagreement? Mostly because there are outside factors pushing insurers to both raise and lower premiums.
For example, some insurers underestimated how many sick people would sign up, or how sick they would be. Last year was in some ways a huge social experiment. Insurers knew that the people who most needed insurance but had been previously shut out of the market would be the first to sign up for coverage. What they didn’t know was how much health care they would consume. Those that guessed wrong and ended up spending more on care than they collected in premiums need an increase to make up the difference.
In some cases, state insurance regulators urged insurers to raise premiums in order to remain financially solvent. “For example,” reported the Commonwealth Fund in a recent paper on premiums, “in approving final 2016 rates, the Oregon Insurance Division required some carriers to increase their rates. Tennessee’s state insurance commissioner also suggested that a requested average increase of 32.6 percent by Community Health Alliance might not be sufficient to make the nonprofit co-op financially sustainable.”
But other analysts say that because most of the sick people are already signed up, those who will join in the future will be healthier and use less care, which argues for lower premiums, or at least smaller increases. “The industry has unanimously and reasonably expressed the view that the least healthy people would sign up first – i.e. in 2014 – thus necessarily resulting in a healthier and less expensive pool of enrollees in 2015 and 2016,” wrote Jay Angoff, a former Missouri insurance commissioner and former federal official, in comments opposing CareFirst of Maryland’s proposed increases. “Nevertheless, (CareFirst) has assumed that its 2016 enrollees as a group will have worse health status and higher claims costs than its 2014 enrollees did. Even modestly more reasonable assumptions in this area could reduce (CareFirst’s) proposed rate increase to single digits.”
Angoff, now a lawyer in private practice, was representing the Maryland Women’s Commission for Health Care Reform and Consumers Union.
Some plans also appear to be trying to increase premiums for 2016 to protect against losses in 2017. That’s when special programs included in the ACA to protect insurers from very high risks will expire. The Obama administration has been trying to reassure health plans that enroll unexpectedly expensive patients that not only does it have enough money to continue the programs through 2016, but that plans would get even more than they expected in some of these special payments.
A fundamental problem, though, says Laszewski, is that too many consumers don’t see the value in the plans available to them and would prefer to simply pay the tax penalty. “The products suck, nobody’s buying them,” he says bluntly. “The reason we’ve got these big increases is because we only have a 40 percent take-up rate.” He says to succeed plans will need to sign up at least 70 percent of those eligible.
But time is working on that problem, too. The penalties for not having insurance are increasing year by year. In 2016 those who are uninsured and don’t fall into one of the categories of people who are exempt will have to pay the greater of $695 or 2.5 percent of their income. In 2014, when the penalties were only $95 or one percent of income, an estimated 7.5 million Americans paid $1.5 billion in penalties.
As of March 31, an estimated 10.2 million Americans were signed up through a health exchange; about 36 percent of the eligible population, according to the Kaiser Family Foundation.