Obamacare Premiums Explode
The Wall Street Journal has reviewed health plans’ rate filings for 2016 in Obamacare exchanges:
In New Mexico, market leader Health Care Service Corp. is asking for an average jump of 51.6% in premiums for 2016. The biggest insurer in Tennessee, BlueCross BlueShield of Tennessee, has requested an average 36.3% increase. In Maryland, market leader CareFirst BlueCross BlueShield wants to raise rates 30.4% across its products. Moda Health, the largest insurer on the Oregon health exchange, seeks an average boost of around 25%.
All of them cite high medical costs incurred by people newly enrolled under the Affordable Care Act. (Louise Radnofsky, “Health Insurers Seek Healthy Rate Boosts,” May 21, 2015)
The article also notes that Insurance Commissioners in some states have the power to roll back rates hike too high (and the U.S. Secretary of Health & Human Services also asserts a similar power, although there is no legal basis for it). It is unlikely that Insurance Commissioners can protect people from these rate hikes: Excessive roll backs will merely cause health plans to exit the market, which would be catastrophic for Obamacare’s political future.
Readers of this blog knew that this death spiral was coming. What is remarkable is that it is happening now. Things must be worse than insurers are disclosing to make them jack rates so high, so soon.
Think about it: Obamacare is the best possible scenario for health insurers. Obamacare is still very much at risk from the Supreme Court’s decision in King v. Burwell and Republican politicians who remain united in pledging to repeal and replace it with patient-centered health reform.
If anything, health plans should want to move public opinion in favor of Obamacare by keeping rate hikes low. Indeed, they should (collectively) be prepared to lose money in exchanges until Obamacare is secure. (The exchanges are still a small part of their book of business. They can subsidize losses in exchanges for a while without risking their solvency.)
A lot of the cost of the rate hikes will be borne by taxpayers instead of enrollees, because Obamacare’s tax credits to insurers operating in exchanges are based on the benchmark (second cheapest silver plan) and limited by beneficiaries’ household income. Nevertheless, that is also hardly good news for Obamacare’s political future, either
Announcing these rate hikes in the summer of 2015 (and, likely, the summer of 2016) indicates that health plans’ experience in Obamacare exchanges is painfully expensive.
A lot of the rate hikes will be borne by taxpayers instead of enrolles
That which is subsidized accelerates the prices than without the subsidy
Can any one state a case where that is not true
It would be interesting to know in how many states the two lowest cost silver plan changed
If widespread how can insurers stabilize or lower premiums if persistency is no more than 2 years?
Don Levit
John, your excellent writing on this issue in the past suggests that insurers are still protected against about 80 per cent of their losses until the end of 2016.
Why then would premiums go up so much this summer rather than next summer? Maybe these insurers really want to get out of the ACA market, and a big rate increase is a way to do so and still make a little profit on the way out.
Thank you. I won’t speculate. However, the course you suggest would be politically dangerous, because nothing could better fuel the fire of the single-payer, government monopoly crowd.
It’s interesting to me that the health insurers seeking the largest premium rate increases for 2016 are all NON-PROFIT companies. UnitedHealth Group, which only competed for exchange business in four states in 2014 while it learned and gained experience expanded to 24 states for 2015. As of its most recent quarterly conference call, it stated that its exchange business is tracking well with its expectations. That suggests that its rate increases for 2016 should be no higher than its expected growth in medical trend which it pegs at 6% plus or minus 50 basis points and is probably coming in slightly below that. It could probably mitigate even that rate by tinkering with deductibles, co-pays and the breadth of its networks.
The companies seeking the big rate increases for next year were probably either hit by adverse selection or just plain didn’t do a very good job in estimating claims experience. It’s also worth noting that in some states, new co-ops are pricing their policies very aggressively (meaning low) to gain market share but they are said to be losing a lot of money in the process. That strategy is clearly not sustainable with or without the ACA’s reinsurance and risk corridors.
The bottom line is that estimating actuarial risk is not an easy undertaking and the big companies that have been at it for a long time do it better than most. However, even they get it wrong sometimes. The companies requesting large premium increases next year are losing their shirts this year. They are not about to do that indefinitely. Even if they’re non-profits, they have to live by the motto in the hospital industry: “No margin, no mission.”
As Bart confirms, insurance is one complex business. When a company gains market share in paper clips, it just gains market share. In insurance, if you gain market share in one year you can lose huge amounts of money in the years to come, as claims run out. This has also been a big problem in long term care insurance.
When insurers lower their prices too fast, there are only a few remedies and all of them are pretty ugly. These include big rate increases, leaving a state, selling blocks of business, etc. The model of insurers competing on price, which has adherents on both left and right, was always too naive.