What the California Rate Increases Should Tell Us

flying cadeuciiThe weighted average increase for plans being sold on the Obamacare California public exchange in 2015 will be 4%. So, that means Obamacare is working really well, right?

Well, wait a minute.

Let’s consider a few things:

  1. This week the California insurance commissioner reported that the average unsubsidized 2014 rate increase carriers charged going into Obamacare was between 22% and 88%. That was a pretty healthy bump (I’ll call it a bump because “Rate Shock” didn’t happen) to get everyone into Obamacare in the first place. And remember, many of these consumers are now in narrow networks in California to boot.
  2. California voters will go to the polls this fall to vote on Proposition 45. That ballot initiative would regulate health insurance rates in California for the first time––something the carriers are dead set against. Big rate increases on part of the carriers would do a lot to get that proposition passed and very low increases would do a lot toward defeating it. The state’s largest carriers have so far made $25 million in political contributions to defeat Prop 45.
  3. The health plans competing in the Obamacare exchanges are limited to very small losses this year because of the Obamacare reinsurance program that runs through 2016. In effect, anymore underpricing the insurers put into their rates for 2015 is subsidized by the federal government. In fact, the Obama administration recently took the statutory caps off of how much they can pay the carriers to keep their bottom line whole.

So, let’s summarize.

The California insurance commissioner has said that consumers saw individual health insurance rate increases of 22% to 88% to get into Obamacare in the first place.

There is a highly contentious November ballot initiative facing the health plans they absolutely do not want to see passed, that would put the government in charge of their rate setting in future years, giving the carriers every incentive to low-ball the 2015 rates so voters don’t have any more incentive to vote for it.

And, to the extent the carriers low-ball the rates, taxpayers will pay for every dime of it given that their losses are capped by the federal government.

Does the average 4% rate increase mean Obamacare is a big success in California?

For 2015 it does.

Let’s see how this all goes when the training wheels come off after the federal Obamacare reinsurance program goes away at the end of 2016 and this November’s Prop 45 is behind us.

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4 replies »

  1. Reinsurance means there are two insurers in the mix
    It is an effective concept but is more appropriate for private insurers rather than a private insurer and the taxpayers
    Consider a self funded employer of 200 or more employees
    Many have dropped self funding in lieu of private exchanges where the employer can define their premium contribution
    If employers want to limit and even lower their contributions they need not
    Go to a private exchange to offer the same old individual policies
    Why not return to self funding with an
    Insurance partner who assumes the risk from the first dollar rather than at say $50,000 of expenses
    Why not allow the insurer to increase its reinsurance risk from dollar one every year on a paid for basis on which no
    More insurance premiums are owed
    If the employers really
    Want to exit the insurance business they should pay less of the first dollar claims and allow National Prosperity Life and Health to pay
    More of the first dollar claims with its exposure increasing each year until the first. $50,000 of claims are assumed by NPLH with no further premiums due
    NPLH looks for approval as a licensed
    Texas insurer next week
    Look for us to visit a large employer next year with our patented Health Matching Insurance crafted for the last three years with one of America ‘s premier actuarial firms
    Don Levit,CLU,ChFC
    Treasurer of NPLH

  2. “what is wrong with that/ (other than the ideological sin of relying on government.)”

    Asked and Answered, Cue allen in 3,,, 2,,, 1,,,

  3. If the reinsurance program is holding down rates, why not keep the reinsurance going permanently?

    Medicare Advantage has had reinsurance since its inception. Germany and other nations have had it for decades.

    Americans often have what I consider a stupid conviction that insurance programs must all be self-financing. The very idea of ‘government assistance’ is considered a weakness that must be rooted out. This notion is stupid because insurance markets are very imperfect and always will be.

    If reinsurance in the ACA costs $8 billion, and as a result the people in the ACA plans save real money every year, what is wrong with that/ (other than the ideological sin of relying on government.)