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What do the projected health insurance premium increases mean to us?

Health Insurance Companies Seek Big Rate Increases for 2016

By Robert Pear
The New York Times, July 3, 2015

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.

The rate requests, from some of the more popular health plans, suggest that insurance markets are still adjusting to shock waves set off by the Affordable Care Act.

It is far from certain how many of the rate increases will hold up on review, or how much they might change. But already the proposals, buttressed with reams of actuarial data, are fueling fierce debate about the effectiveness of the health law.

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.

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.”

“People are getting services they needed for a very long time,” Ms. Williams said. “There was a pent-up demand. Over the next three years, I hope, rates will start to stabilize.”

Sylvia Mathews Burwell, the secretary of health and human services, said that federal subsidies would soften the impact of any rate increases. Of the 10.2 million people who obtained coverage through federal and state marketplaces this year, 85 percent receive subsidies in the form of tax credits to help pay premiums.

In an interview, Ms. Burwell said consumers could also try to find less expensive plans in the open enrollment period that begins in November. “You have a marketplace where there is competition,” she said, “and people can shop for the plan that best meets their needs in terms of quality and price.”

In their submissions to federal and state regulators, insurers cite several reasons for big rate increases. These include the needs of consumers, some of whom were previously uninsured; the high cost of specialty drugs; and a policy adopted by the Obama administration in late 2013 that allowed some people to keep insurance that did not meet new federal standards.

“Healthier people chose to keep their plans,” said Amy L. Bowen, a spokeswoman for the Geisinger Health Plan in Pennsylvania, and people buying insurance on the exchange were therefore sicker than expected. Geisinger, often praised as a national model of coordinated care, has requested an increase of 40 percent in rates for its health maintenance organization.

Federal officials have often highlighted a provision of the Affordable Care Act that caps insurers’ profits and requires them to spend at least 80 percent of premiums on medical care and related activities. “Because of the Affordable Care Act,” Mr. Obama told supporters in 2013, “insurance companies have to spend at least 80 percent of every dollar that you pay in premiums on your health care — not on overhead, not on profits, but on you.”

In financial statements filed with the government in the last two months, some insurers said that their claims payments totaled not just 80 percent, but more than 100 percent of premiums. And that, they said, is unsustainable.

http://www.nytimes.com/2015/07/04/us/health-insurance-companies-seek-big...

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Comment:

By Don McCanne, MD

Although it will be about three months before we have the final health insurance premiums for 2016, the information we have already can warrant a few preliminary observations.

  • The Affordable Care Act appears to have failed on delivering its promise of controlling global health care costs. The primary reason given by the insurers when submitting requests for much higher premiums for 2016 is that health care costs were much higher than their actuaries anticipated.
  • Some complain that new enrollees were less healthy and thus drove spending up, but under the individual mandate, increases in enrollment were across the board and not concentrated amongst the less healthy.
  • There may have been some pent up demand amongst new enrollees (e.g., joint replacement) but that is only a transient surge which does not warrant long term premium increases. Much of the pent up demand will have been ventilated as most of the remaining uninsured are ineligible by immigration status or by personal hardship. The numbers who are eligible but decline coverage will only trickle in as health care needs develop.
  • It appears that the increases in the benchmark silver plans will not be as great as the increases currently receiving considerable publicity. Requests over a ten percent increase were required to be made public whereas increases under ten percent will not be known until plans are marketed prior to the November 1 beginning of open enrollment.
  • Because rate increases vary considerably amongst the plans, many individuals will be forced to choose between paying higher rates by staying in their current plans or changing to plans with lower rates but with different narrow provider networks thereby potentially sacrificing continuity of care.
  • Respected institutions such as Geisinger in Pennsylvania and Scott and White in Texas are asking staggering premium increases, indicating that the supposed cost containment features of ACA are having a negligible impact on legitimate spending.
  • Little is being said about the insurance underwriting cycle. Large, well capitalized insurers are able to price their products more competitively, decreasing the market presence of less competitive insurers. Once market dominance is established, insurers are free to drive up premiums as much as 20 to 40 percent, as reported in this New York Times article. The regulated medical loss ratios are generous enough to allow market performance (profits) to excel, as confirmed by current Wall Street activity in health insurance equities.

So are we going to wait until October when the premium rates are announced, and then do nothing other than continue to stand back and observe because the insurers will reassure us that silver benchmark plans didn’t go up that much - maybe 4.4 percent - even if it means that the enrollees have to switch plans and find new providers in a different narrow network? Is this the good that’s coming out of all of this? What about those who want to continue with their current providers, but face a 20 to 40 percent premium increase? Will the death spiral bleed over from insurers to patients?

Enough. Single payer.