Low rates key to Obamacare growth

August 4, 2014

Insurers weigh risks, demographics in setting premiums for 2015

WechslerFor months there has been speculation and predictions about how much premiums will rise next year for health plans sold through federal and state exchanges. Low rates are the prime factor in prompting consumers to purchase health coverage-especially the young “invincibles” needed to establish a healthy risk pool. 

Insurers, policymakers and consumer groups are now digesting first-year results and calculating costs and charges for 2015, despite limited data. This year’s exchange market was very different from anything previously experienced, noted WellPoint vice president Elizabeth Hall at a June briefing sponsored by the Alliance for Health Reform. Rates could not be based on health status or gender, and there was little information on the needs of the uninsured. Insurers had to price premiums high enough to cover expenditures, but “it was basically a guess,” she conceded.

Risks and reinsurance 

The major drivers of 2015 premiums will be the composition of the risk pool and how it compares to what was projected; expected reductions in reinsurance program funds; and the underlying growth in healthcare costs, explained Cori Uccello of the American Academy of Actuaries. Growth in medical spending has remained fairly low, although it’s not clear how long the slowdown in medical trend will continue, Uccello pointed out.

Insurers expect to benefit from some increase in enrollment as the individual mandate penalty kicks in. And some of the low-risk beneficiaries who were permitted to retain existing plans now may join the risk pool, although some states will allow non-compliant coverage to continue for another year. 

Premium subsidies also will be a main factor driving enrollment in exchange plans. Of the 8 million people who signed up through federal and state marketplaces this year, 85% qualified for some financial assistance. 

 

At the same time, stronger federal and state rate review programs and increased transparency in insurer rate information may impact plan pricing decisions. While insurers don’t have to reveal complete rate filings for competitive reasons, more disclosure will help consumers and analysts compare premium rate increases and what’s driving them, pointed out Commonwealth Fund vice president Rachel Nazum. Almost 30 states now have prior approval requirements for rate increases, and many of the 15 states that retain “file-and-use” policies take a closer look at rate hike requests. 

Required coverage of a comprehensive set of benefits means that insurers can compete less on benefit packages, and more on coinsurance options, customer service and provider access, pointed out Hall of WellPoint. Insurers talk about “value networks” that can help keep costs down, but they have been criticized for narrowing provider choice too much.

Tradeoffs between rates and coverage will be important in shaping access to providers and to prescription drugs. WellPoint anticipates that specialty pharma will have a $100 million impact on costs this year and will continue to rise. And that “definitely is something we factor into our rates,” Hall explained. 

Premium increases will vary from state to state, according to an analysis by Avalere Health. An examination of initial rate filings in nine states reveals a wide range of changes, from a 16% increase in the Indiana federal exchange, to a 1.4% drop in rates for Oregon’s state-run market. These numbers reflect initial “opening bids” on rate filings as rate review continues through August. Early filings indicate that more insurers will offer plans through exchanges, competition that could drive down premiums. 

Jill Wechsler, a vederan reporter, has been covering Capitol Hill since 1994.