Obamacare Set To Spike? Um…

Joe-FlowerSo it’s all over the news space and the shrieking blogosphere, with headlines like, “Obamacare Rates To Spike Up To 51%,” “Obamacare Hell…” and “Obamacare Inflationary Deluge…”

And online friends are commenting about “Obamacare premiums set to rise next year as much as 51% in some states…”

Hey, hey, hey. No need to panic. “Set to rise.” Stated as an actual set-in-stone future. See, kids, this is why I tell you not to try this at home. Being a real futurist takes a professional.

You might remember in spring of 2014 we saw headlines about how 2015 rates would “skyrocket.” And I said, “Nope.”

So what’s really happening this year? Do we each have to imagine our present rates suddenly rising by 40 or 50 percent? Here’s my reasoning.

First, these are rate hike requests, not actual rate hikes. They are not “set” at all. Think of them as opening bids by individual companies in the current round of rate adjustments, which have to pass muster in their particular states. Like any group of numbers, they fall on a bell curve. The headlines are about the extreme outliers in a few markets.

So who are these outliers?

The number of insurance companies willing to compete in each market has risen sharply year over year as the industry gets the hang of the post-ACA landscape. This was one of the big successes of the ACA, in fact: There actually is more competition. If you want more market share, you have to keep the premiums competitive. The plans are competing for market share, and trying to find their place in it. This is good for the consumer. If your plan posts a big rate hike, you can decamp to a rival.

Being the lowest cost health plan in a given market is not necessarily the happy spot, because it probably means you undershot — and those customers who shop purely on price are the least loyal, hardest to retain, and often the hardest to service. Being the low-cost health plan also means having to put together very narrow networks of doctors and hospitals willing to work for amounts you couldn’t bribe a city councilman with.

So those companies that are asking for a 40 or 50 percent hike? They are probably the ones who undershot the market before in an attempt to gain or keep market share, got clobbered, and are trying to adjust upwards for next year. In addition, they will overstate their request to get some negotiating room when they get pushback.

And there’s one more wild card: King v. Burwell. Its outcome will be known in the next few weeks, well after the health plans had to put in their rate requests for 2016. If the Supreme Court finds for the plaintiffs, there are many ways the result could play out. But for the states that let the federal government run their exchange — the states in which 6.5 million citizens now have subsidized health plans endangered by King v. Burwell — there is only one way out that would not throw both ACA and private insurance markets into complete chaos. And that way — the Republican Congress convening instantly and passing a clean one-sentence correction to the ACA, well before the 2016 sign-up season begins — is also the least likely. So some of these health plans may well be banking extreme rate requests against that chaos. If the chaos doesn’t happen, there will be no need for extreme rate hikes — and those companies won’t want them anyway, because they won’t want to price themselves out of the market.

So in the spring of last year the supposedly leaked reports that rates were set to “skyrocket” in 2015? They were publicized by some of the very same outlets that are producing the headlines with the highest shriek quotient right now.

I said it wouldn’t happen. Did it happen? Remember what actually happened? The final number, the nationwide average increase in premiums in the ACA exchanges? Zero.


Will that happen again? Who knows? There are too many factors in play in all the regions across the country, more insurance carriers plunging into more markets, some withdrawing from some markets or even getting out of the health plan business all together. But these headlines about a few outliers in a few markets are no evidence at all about the actual future. Forget it.

Categories: Uncategorized

6 replies »

  1. What we would have to look at are the individual markets and what is going on there. For instance, here is an article from today’s Oregonian about rate increases in Oregon: http://www.oregonlive.com/health/index.ssf/2015/06/oregon_health_insurance_premiu.html

    Some things to notice: First: Wow. there are a lot of companies in that market!
    Second: The increases come because the 2014 numbers resulted in a collective 118% MLR for all providers.
    Third: The really big percentage increase proposals seem to be from the smaller and/or newer entrants who came in as bottom feeders. The big traditional providers, such as Regence and Kaiser, are near the bottom. In fact, Kaiser is the very lowest, with an 8% raise in the Silver category — and even that was at the order of the insurance commissioner. They wanted to go lower. Last year they were in the middle of the market, next year in that category they will be the lowest.

    So even though the top four increases range from 35% to almost 39%, those do not at all reflect what the average experience of Oregon ACA rate payers will be.

  2. Now that is a very good point, JK. It is blunted somewhat in its complexity, that is, economic incentives have the greatest effect if they are large and easily understood by the buyer/chooser. I wonder how easy it will be for the average buyer to figure this out, and if it does how it will affect their behavior. As you point out in your column, if they like their doctor and network, the extra $28 per month may not be enough to cause them to change carriers.

    But it does point out that the high-end outliers will be much weaker market movers than the low-end offers.

  3. Another factor are the tax credits (assuming they remain in place). Rate decreases that reduce the premiums of the second-lowest cost silver plan on the Obamacare exchanges reduces the size of the tax credits available for ALL low- to moderate-income buyers. I wrote about this on this blog last year: https://thehealthcareblog.com/blog/2014/04/22/competition-not-higher-premiums-is-the-biggest-threat-to-obamacare-buyers/. In my city, Indianapolis, the size of tax credits fell by 14 percent from 2014 to 2015 for families of four with average household incomes here. Based on initial rate filings, the tax credits would fall another 30 percent for 2016–because insurers are asking for lower premiums in a bid for market share. The tax credits kind of turn things upside down, making rate hikes easier to stomach (at least for those who qualify for tax credits) than rate decreases.

  4. This is a very helpful analysis. Case in point: The insurer with the highest rate request in my state of Indiana this year (so far) is Assurant Health, asking for a hike of 26 percent. But that’s because Assurant has lost $84 million nationwide on its Obamacare policies and is now going to exit the marketplace. It’s also worth noting that a large rate increase doesn’t necessarily mean bad news and a rate decrease isn’t necessarily good either. Some insurers priced very low to begin with and so now are raising their rates; but in Indiana, rates started out 28 percent higher than the rest of the country in 2014 and have been fairly stable since then–but still more expensive than other states seeing larger increases.

  5. There is truly some hysterical analysis out there on these rate hikes, even from people who portray themselves to be sober-minded insurance experts. Probably corporate shills, really.

  6. Agree with you Joe.

    Not sure anybody is going to raise, doing so would outrage voters and invite a new wave of regulation. On the other hand, it’s possible that we’ll see a series of gradual raises over time as the market establishes itself. Rather than a bump of fifty percent I’d expect to see three successive years of more modest increases.

    Good thing? Bad thing? I’m not sure people buying insurance on the market will be very happy about it. How much should insurance cost? We’re going to find out.