On the 4th of July, the New York Times had a story about health insurers’ requests for massive increases in premiums. The rate increases — or rather, the requests for increases, which are subject to federal approval — are the first to reflect a full year of experience with the new insurance exchanges and federal requirements. In other words, they give a more complete picture of things to come. Here’s a tidbit:
Health insurance companies around the country are seeking rate increases of 20 percent to 40 percent or more, saying their new customers under the Affordable Care Act turned out to be sicker than expected. Federal officials say they are determined to see that the requests are scaled back.
Blue Cross and Blue Shield plans — market leaders in many states — are seeking rate increases that average 23 percent in Illinois, 25 percent in North Carolina, 31 percent in Oklahoma, 36 percent in Tennessee and 54 percent in Minnesota, according to documents posted online by the federal government and state insurance commissioners and interviews with insurance executives.
The Oregon insurance commissioner, Laura N. Cali, has just approved 2016 rate increases for companies that cover more than 220,000 people. Moda Health Plan, which has the largest enrollment in the state, received a 25 percent increase, and the second-largest plan, LifeWise, received a 33 percent increase. . . .
A study of 11 cities in different states by the Kaiser Family Foundation found that consumers would see relatively modest increases in premiums if they were willing to switch plans. But if they switch plans, consumers would have no guarantee that they can keep their doctors. And to get low premiums, they sometimes need to accept a more limited choice of doctors and hospitals.
Some say the marketplaces have not attracted enough healthy young people. “As a result, millions of people will face Obamacare sticker shock,” said Senator John Barrasso, Republican of Wyoming.
By contrast, Marinan R. Williams, chief executive of the Scott & White Health Plan in Texas, which is seeking a 32 percent rate increase, said the requests showed that “there was a real need for the Affordable Care Act.” . . .
Blue Cross and Blue Shield of New Mexico has requested rate increases averaging 51 percent for its 33,000 members. The proposal elicited tart online comments from consumers.
Here are some of the reasons for the increases:
Insurers with decades of experience and brand-new plans underestimated claims costs.
“Our enrollees generated 24 percent more claims than we thought they would when we set our 2014 rates,” said Nathan T. Johns, the chief financial officer of Arches Health Plan, which covers about one-fourth of the people who bought insurance through the federal exchange in Utah. As a result, the company said, it collected premiums of $39.7 million and had claims of $56.3 million in 2014. It has requested rate increases averaging 45 percent for 2016.
To be sure, in most case regulators will manage to restrain the increases. But how much, exactly? Megan McArdle argued back in May that the final rate increases will not be as small as some predict.
Philip Klein of the Washington Examiner commented on the increases, and a related problem, a few months ago:
In recent weeks, large insurers selling coverage through Obamacare have proposed massive rate increases for 2016 — even exceeding 40 percent — because they haven’t been able to sign up enough young and healthy customers.
This is an ominous sign for the future of Obamacare, because two federal programs that were supposed to act as training wheels for insurers in the early years of Obamacare by absorbing excess risk are set to expire after 2016. If insurers don’t do a better job of attracting a healthier risk pool, 2017 promises to be a rocky year for insurance markets, regardless of which party is in control of the White House.
More problematic risk pools, uncertainty about the how the risk-corridor payments will be funded, and other factors explain the requests for big rate increases. But as Klein concludes:
Proposed rate increases are just that – proposals. They are the start of the back and forth between insurers and regulators, and eventual rates could be vary significantly from the initial proposals.
But the overall picture — a weaker than expected risk pool, the expiration of programs that have been propping up the insurance market — doesn’t bode well for the future of Obamacare.