Up, Up and Away
During both of his two campaigns and the 2009 debate over healthcare reform, President Obama often stated that his plan would cut the average premium of a typical family by $2,500 per year. But not surprisingly, prices are instead going in the opposite and wrong direction. As Jed Graham blared in his May 18, 2015 Investor’s Business Daily column, “ObamaCare Premium Increases Next Year May Shock You.”
The President’s hyped-up sales pitch about premiums retains a prominent place on the growing list of broken promises about the Affordable Care Act (ACA). Said Graham, “The very limited data and the possibility that these initial requested rates might change, as they did in a significant way last year, make it hard to draw firm conclusions. But so far it appears that the Congressional Budget Office was on target in projecting a significantly bigger overall increase than in 2015.”
Graham reported that insurers in six states are seeking an average hike of 18.6 percent. But some are much higher, especially BlueCross Blue Shield of Tennessee, the state’s dominant insurer with 70 percent of the market, which is seeking a 36.6 percent rate hike for its 165,000 members.
The people who will be most affected by the rate increase are those that do not receive taxpayer-funded subsidies to help pay for health insurance premiums. That means people with household incomes above 400 percent of the federal poverty level (FPL) will pay the full freight of their premiums. That includes individuals that earn more than $47,080 and a family of four with a household income of more than $97,000.
Graham pointed out that “The vast majority who do get subsidies will be shielded from higher premiums because their contribution is a fixed percentage of income, leaving the government [taxpayers] to pay the difference.” These are individuals or families with household incomes between 100 to 400 percent of the FPL.
Examples of other states with above-average requests include Oregon. The state’s online marketplace, Cover Oregon, had been dubbed one of the worst in the country and is now the subject of several investigations and lawsuits. The state’s predominant private company with 50 percent of the individual market and 100,000 Exchange enrollees, Moda Health, is asking for an average 25.6 percent increase. According to Graham, Moda’s costs in 2014 exceeded premiums by 61.5 percent, even after receiving government reinsurance payments to offset the costs of the sickest patients.
Another private insurance company in Oregon, LifeWise, which covers about 17 percent of the market, is asking for a 37.8 percent increase. A new entrant, Zoom Health, will offer the lowest price silver plan. Graham wrote, “It will take another year or so to learn whether LifeWise and Moda were too pessimistic about the health of the enrollees who will sign up in 2016, or whether Zoom Health is too optimistic.”
The Oregonian reported on May 1, 2015, that “Insurers used educated guesswork to set 2014 and 2015 rates, which in Oregon were lower than expected and some of the lowest in the country. Now, with a full year of cost and claims data under their belts, some insurers are essentially saying the Oregonians they covered turned out to be sicker and costlier than expected.”
Marylanders are expected to see above average rate increases as well. According to the May 15, 2015 Baltimore Business Journal, CareFirst Blue Cross/Blue Shield, the region’s largest health insurer, is seeking an average price increase of 28 percent for individual health plans in 2016. The rate hike, according to CareFirst, “reflects the cost of caring for the older and sicker population that has newly been buying individual health plans under the federal Affordable Care Act.” CareFirst CEO Chet Burrell said, “CareFirst has predicted for some time that rates would need to climb from artificially lower levels due to the characteristics and needs of the population that has actually enrolled.”
Louise Radnofsky of The Wall Street Journal reiterated Graham’s analysis of the marketplace when she reported on May 21, 2015 that “major insurers in some states are proposing hefty rate boosts for plans sold under the federal health law, setting the stage for an intense debate this summer over the law’s impact.” Radnofsky wrote that in “New Mexico, market leader Health Care Service Corp. is asking for an average jump of 51.6% in premiums for 2016.” The reporter noted that “insurance regulators in many states can force carriers to scale back requests they can’t justify. The Obama administration can ask insurers seeking rate increases of 10 percent or more to explain themselves, but cannot force them to cut rates.”
The key words to remember regarding rate increases are “can’t justify.” According to every insurer interviewed by Radnofsky, “all of them cite high medical costs incurred by people newly enrolled under the Affordable Care Act.” The Journal article stated, “Insurers say their proposed rates reflect the revenue they need to pay claims, now that they have had time to analyze their experience with the law’s requirement that they offer the same rates to everyone – regardless of medical history.”
Even Montanans, from the home state of former Senate Finance Committee Chairman Max Baucus (D-Mont.), who spearheaded the crafting of the legislation that became ACA, will also be seeing rate increases. The AP reported in the Register Guard that “health insurers selling individual policies on Montana’s Affordable Care marketplace say rate increases are likely next year after they suffered losses they attribute in part to initial underestimates of the costs of the new business.”
Montana Commissioner of Securities and Insurance and State Auditor Monica Lindeen has started to review the increase requests and said it is likely she will reject parts of them. But Pacific Source Vice President and Montana Regional Director Todd Lovshin said that what “we’re seeing across the country is that nearly all health insurers, large and small, are losing money in the individual marketplace.” According to AP, PacificSource lost about $17 million on the 275,000 customers it serves with commercial insurance, Medicare and managed Medicaid plans. The Montana Health Co-op lost about $4 million in 2014 on $30 million worth of business; and Blue Cross’s parent company in Montana, Health Care Service Corporation, lost $282 million.
The ACA requires insurers to justify any increases of more than 10 percent and submit these rate increases to either the state or federal government for review. According to the Center for Medicare and Medicaid Services (CMS), which oversees ObamaCare, “the rate review process is designed to improve insurer accountability and transparency. It ensures that experts evaluate whether the proposed rate increases are based on reasonable cost assumptions and solid evidence and gives consumers the chance to comment on proposed increases.”
Currently, according to CMS, 45 states will review proposed increases, and five states that do not have an effective rate review system because they lack the resources or authority to conduct the required process must submit any proposed rate increases to the federal government for review: Alabama, Missouri, Oklahoma, Texas, and Wyoming.
The law also requires that the summary of rate review justifications and results be available to the public in an easy to understand format. CMS has a website on which the public can see the requested premium increases that are greater than 10 percent. It should be noted, however, that CMS issued a one-time delay that allows states with effective rate review systems and which are not using the federal facilitated marketplace (healthcare.gov) until June 19 to post their proposed rates.
Utilizing the CMS website, one can find that in former Sen. Baucus’s home state of Montana, insurers are seeking increases ranging from 13.2 percent to 48.2 percent. In Nevada, the home state of former Senate Majority Leader Harry Reid (D.) who oversaw the final draft and passage of ObamaCare, insurers are asking for increases of 10.2 percent to 72.8 percent. President Obama’s home states of Hawaii and Illinois insurers are asking for increases in the range 17.5 to 49.9 percent and 10.8 to 42.4 percent respectively.
Currently, insurance companies are being prevented from suffering deep financial losses by the “three Rs,” which stand for risk adjustment, reinsurance, and risk corridors. These mechanisms, created under ACA, allow the government to collect and reserve funds from insurers, which can be redistributed to insurance companies if they end up paying out more in medical costs than they took in from premiums. The administration even attempted to utilize unlimited tax dollars in the risk corridors until Congress stopped them in the fiscal year 2016 CROmnibus appropriations bill.
The three Rs’ purpose was to encourage insurers to offer lower cost plans than they otherwise would have as they transitioned to a new marketplace that required them to accept people with preexisting conditions and cover the 10 essential benefits.
Only the risk adjustment provision is permanent. The other two provisions expire in 2016 and if a large percentage of people in the ObamaCare Exchanges continue to be older and sicker, insurers will continue to charge higher prices for their plans.
Robert Laszewski, a health insurance expert, wrote the following in his June 1 Health Care Policy and Marketplace Review blog:
Some will quickly argue that many of these rate increases are subject to regulatory approval and can be rolled back. That’s right. But this year the health plans have hard claim data to show the regulators and a 35% rate increase is hardly going to be rolled back to 5%. Big rate increases like this are driven by a lot of claims experience – a lot of really lousy claim experience.
That these big rate increases are coming a year before the “3Rs” reinsurance program is to end, that was supposed to subsidize the health plan’s high claims experience, is not good news.
There will be more news stories as healthcare reporters and policy experts review the data that has been submitted regarding health insurance rate increases. Most of the rates will be reviewed and approved by the states and federal government by August 25, 2015 and all should be posted before November 1, 2015, the first day of the 2016 open enrollment period.
If these trends continue, it could trigger what has been called the death spiral for ObamaCare: The failure of sufficient numbers of healthy young people to sign up for insurance to cover the cost of the older, sicker patients remaining in the ObamaCare health plans. If premiums keep climbing, younger and healthier consumers may increasingly decide to take the risk and not purchase health insurance at all; they may find it is less expensive to pay the tax penalty instead. As a result, insurers will continue to pay out more in medical costs than they receive and the cycle begins again. The difference is by the end of 2016, many of their financial protections will be gone.
That’s when the Affordable Care Act will become even more unaffordable.
