Many health insurers have asked insurance regulators for sizable premium increases next year, but final rates are likely to be much lower than the ones requested. Most of the increase is expected to hit the individual market, however, small groups could feel it as well.
On June 1, 2015, HealthCare.gov, the federal website for enrollment in exchange plans, listed all the individual and small-group plans for 2016 that are requesting “significant” rate increases. The Affordable Care Act requires HHS to review any health plan that would hike premiums for consumers by at least 10%. Final rates are finalized over the summer and fall.
For some insurers, the rate requests may be actuarially sound, said Jim Whisler, an actuarial consultant with Deloitte. Assurant Health has asked for extremely lofty premium rate hikes in Arizona, Arkansas and Florida, among others. But Assurant has also lost millions of dollars on ACA plans and is looking for a buyer.
Also, HealthCare.gov doesn’t offer a complete picture of proposed rates. It does not show the companies that are asking for modest increases or reductions. HHS is expected to try to suppress requests for exorbitant increases (defined as over 10%). Still, it remains to be seen how the carriers will respond to the influx of unhealthy people coming into the system over the past few years.
The varying premium requests indicate that insurers are still unsure of how to gauge this growing patient population, experts say. Aside from medical cost trends and the rising prices of prescription and generic drugs, health insurers have to factor in the medical-loss ratio that caps their profits. They also have to account for the ACA’s three premium risk programs, two of which are sunsetting after 2016.
Insurers are able to base next year’s premiums on a full year of data from 2014. But technological problems during the first open enrollment and the extension of grandfathered health plans add asterisks to the market. This said, the Exchanges saw a jump in enrollment this past year, many of whom were not necessarily the unhealthy. Some of the increase is a result of the of the individual tax penalties taking effect for those not covered. Still, the carriers have to account for the claims associated with more pre-existing conditions entering the system.
A major unanswered question for insurers is whether consumers will shop around for better deals. People tend to stick with health insurance policies due to familiarity of providers, apathy or confusion, but the most recent open-enrollment period suggested at least some insurers are taking their business elsewhere if their plan’s price goes up too much.
“I think there are some indications people are willing to change plans on the exchanges,” said Whisler, who believes premium increases of 10% or more are likely in 2017 and beyond. “If people do seek the lower increases and are willing to change plans and even physicians, then they’re not going to experience as large of a rate increase.”
The King vs. Burwell case before the U.S. Supreme Court could make the requested rate increases meaningless. If justices rule that subsidies cannot be given to people who bought health plans in as many as 37 states that relied on HHS to operate their insurance exchange, millions of people would likely leave the individual market because they can’t afford their premiums. The sickest patients would retain their insurance out of necessity, which would force insurers to raise rates and send the individual market into a “death spiral.”
Until the case is settled this month, that scenario is what insurers will be “most concerned about,” Murphy-Barron said.
Our communication to clients has been “status quo” with a hint of caution as it remains to be seen exactly what rates will look like. Makes you wonder where the “affordable” is in the Affordable Care Act.