Obamacare’s Double Digit 2016 Rate Hikes
In Missouri, Coventry has asked for a 23 percent Obamacare rate hike next year:
Insurance brokers had considered the health plans sold by the Maryland-based insurer to be among the cheapest with the most extensive provider networks available to Missouri consumers.
But Coventry’s strategy appears to have caught up with it, and the insurer is now asking federal regulators to approve an average rate increase of 23 percent for plans sold in the St. Louis area. (Jordan Shapiro, “Coventry Health Care seeks double-digit price hike for health plans,” St. Louis Post-Dispatch, June 2, 2015)
But, hey, if I posted every article about eye-popping rate hikes in Obamacare exchanges next year, we’d have room for nothing else on this blog for the next few weeks. So, I’ll leave it to my Forbes colleague and Obamacare fan, Bruce Japsen, to roll up the whole story:
After two years of relatively stable premiums across the country, rates will jump in 2016 by double-digit percentages for individual policy purchasers on public exchanges under the Affordable Care Act in practically every state, according to the first glimpse of proposed costs for next year released by the Obama administration.
It’s likely, though, that the “requested” rate increases will change as health plans negotiate with the Obama administration as well as insurance commissioners in states where the plans do business. Final rates for 2016 will be disclosed by Nov. 1 and include all plans and not just those at the higher end of price increases in this initial report. (Bruce Japsen, “Obamacare’s Double-Digit Rate Hikes For 2016 Disclosed,” Forbes, June 1, 2015).
Well, if you say so. But if you were a health insurance executive, is this how you’d play Obamacare’s third year? With a frontal assault against state Insurance Commissioners and the U.S. Department of Health & Human Services, followed by almost half a year of those worthy bureaucracies beating you back into a single digit rate hike?
Or would you have more likely low-balled your bid, seeking to let sleeping dogs lie until the Supreme Court has decided King v. Burwell and you’ve had a chance to invite Chelsea Clinton to give a keynote address at your next annual meeting before the 2016 election?
Let’s not forget that Obamacare was supposed to get less risky, not more, every year. That’s why 2016 is the last year before Obamacare’s training wheels – risk corridors and reinsurance – come off and insurers have no more recourse to taxpayers backstopping their losses in Obamacare’s exchanges.
I think the insurers’ play is to go for at least the premiums they think will be needed for 2016. Otherwise they’ll start out negotiating from a lower level than they think is needed. In effect, that’s negotiating against themselves. Keep in mind that for 2016, insurers have much more credible enrollment and claims utilization experience on which to set their premiums.
Besides, the risk corridors were never more than an incentive to persuade insurers to participate in the first place, given all the ACA unknowns and negatives from day one. The prospect of risk corridor reimbursements is not a reason to deliberately understate premiums.
Otherwise – if the insurers’ strategy were to go for less than they think they need – it would cost them both in 2016 and in 2017:
1) In 2016 if premiums are not adequate the insurers would be obliged to carry their losses until the federales get around to making the risk corridor payments – which in any case would not occur until some time well after the end of 2016. That amounts to an interest-free loan to the federales.
2. In 2017 premiums would have to make up any shortfall from 2016 premiums plus expected 2017 trend. Making up that 2016 shortfall would add to any increase that would otherwise be needed for 2017. And that would force insurers to start 2017 negotiations playing catchup and without the prospect of any more risk-corridor payments. The last place any health insurer wants to be, is playing catch-up with its premiums.
So I think the insurers’ play is to go for at least the premiums they think will be needed for 2016.