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As health plans work to develop and price products for the 2017 open-enrollment cycle-beginning November 1, 2016, it looks like some premiums are set to rise substantially.
As health plans work to develop and price products for the 2017 open-enrollment cycle-beginning November 1, 2016, it looks like some premiums are set to rise substantially. For example, reports show that some premiums could rise more than 60% in Texas, Tennessee, and Arizona, as well as other states.
Reasons for the premium increases include:
BarkettSimply put, John Barkett, senior director of policy affairs, Willis Towers Watson, Washington, D.C., says payers are hiking premiums to make their individual lines of business profitable in 2017. “They’ve been unprofitable to date for a myriad reasons: cutthroat competition caused some insurers to underprice the market; governmental risk mitigation programs promised a financial backstop that never materialized; and some customers used special enrollment periods to obtain insurance only after they became sick,” he says.
Federal government programs that didn’t work as expected are also to blame, says Jim Whisler, principal, Deloitte, Minneapolis, Minnesota. He points to the risk corridors program as an example. “Given the uncertainty in pricing plans for the exchange population, it was supposed to provide insurers with protection for underpriced plans,” he says. “If an exchange plan’s loss ratio-that is the amount of claims relative to premiums was above a certain percentage-then the government would pay the insurer a proportion of the excess. In 2014, only 12.6% of the dollars owed through the program were actually paid because of funding issues.”
While the federal government’s reinsurance program worked well, according to Whisler, it will no longer be in effect in 2017. This program protected plans that had a disproportionate share of people with significant health needs, by covering a percentage of the costs in excess of the attachment point for up to $250,000 for each plan member. This program paid out more than was initially anticipated. “So plans’ rates for 2017 need to reflect the fact that they will no longer get funding through this program,” he says.
Next: Reasons three through six
WhislerAnother contributor to rising premiums is the fact that initial projections indicated a much higher exchange membership by this point. The lower-than-expected enrollment has resulted in a mix of members that are materially sicker than a typical insured population. “When health plans initially priced their products, they assumed that this population would have a more balanced mix of insureds as it relates to health status,” Whisler says.
Antoinette Kraus, director, Pennsylvania Health Access Network, Philadelphia, Pennsylvania, says that pent-up demand for access to medical treatment is another driver of rate increases. “For many years, people who lacked health coverage delayed care or paid for limited care based on their ability to pay for it,” she says. Furthermore, she believes that certain companies, in an effort to attract volume, underpriced their products initially and were then overwhelmed by the demand.
Kraus cites other forces at work as well. “Flawed modelling that relied on data from the previously existing commercial market could have been corrected by relying more heavily on data from the Medicaid managed care companies,” Kraus says. “We believe that important policy tools like an all-payer claims database would have provided better resources and information on which plans could rely.”
Clare Krusing, press secretary, America's Health Insurance Plans, Washington D.C., says premiums are also expected to increase because medical costs and the underlying costs of providing care are increasing. But hikes will differ among regions due to varying costs for hospitalization, specialty services, and prescription drugs.
Next: Comparing 2016 to 2017
In 2016, weighted average premiums increased by 12% compared to 2015. For 2017, weighted average requested premiums increases will end up around 21%, according to Charles Gaba, who compiles requested rate increases for the model he runs at ACASignups.net, Barkett says. However, final premiums will be lower than requested, on average, and will likely be around 15%. “But that number assumes no one changes plans,” says Barkett. “Once enrollees do change plans, the weighted average increase will likely be down to around 10%.”
Whisler says a number of health plans with high exchange membership have been significantly underpriced as demonstrated by their losses, and as a result will need rate increases well above medical trend to reflect this historical underpricing. In other cases, health plans are pulling out of the exchange markets in certain states, such as UnitedHealthcare. “Those staying in will need to get to a stable point with their premiums rates,” he says. “Some will bite the bullet and implement a large increase in 2017, even though they tried to ride it out in the past as they hoped that the number of healthier members would increase.”
Whisler believes that plans with broad networks, such as those with PPOs in which members can seek care wherever they want, will be among those with the highest increases. “A good strategy to avoid having to implement high rate increases is to have a more narrowed network (which limits patient coverage to specific doctors, hospitals, and prescription drug benefits) that can forge close relationships with specific care systems. “The sickest people tend to seek out plans where they have the most choices in seeking care,” Whisler says.
Value-based care is a way for plans to get providers involved in sharing some of the risk. “This has been done successfully in California, for instance, which may be one of the reasons rates haven’t increased as much there,” Whisler says. “Care systems have much more stake in medical expenses when they have some risk incentive. Furthermore, value-based care arrangements are frequently paired with having narrower networks.”
For Whisler, the ultimate success of the exchanges is dependent upon getting a better mix of members enrolled in the exchanges, instead of having primarily sick members. “Having such a disproportionate share of sick people enrolled increases premium rates and keeps healthier people out of exchanges,” he says. “Healthier people don’t enroll because they don’t think they will use the insurance and that it’s not a good deal for them relative to the penalty. Health plans can get more healthy people to enroll by creating narrow networks and closely managing patients. The federal government should do more as well, such as not allowing as many people to avoid paying the penalty, and marketing the importance of insurance to typically healthy segments of the population.”
Next: Are exchange plans not working?
So far, the exchange component of Obamacare has been pretty rocky. But Whisler thinks the jury is still out on the success of exchanges. “If more people don’t enroll in the exchanges, you won’t have a market as it was originally anticipated,” he says. “However, if enrollment can be increased through health plan and government actions, then the exchange markets can be stabilized.” But it doesn’t look like 2017 will be a good year for exchanges; action will be required to improve the outlook for 2018.
KrausBarkett isn’t ready to call the exchanges a failure, either. “The market is going through growing pains. Premium spikes should become rarer over time as the market stabilizes,” he maintains.
Kraus believes that as more people gain access to coverage, they can seek medical treatment that should ultimately improve their health outcomes and lower costs. “In the interim, companies need to find the appropriate rate to ensure solvency,” she says. “It will take several years to strike the appropriate balance.”
Krusing adds, “Premium increases show that there is still more work to be done to bring underlying costs under control. We need to look at the factors that drive premium increases, such as the prices being charged for medical services.”
Karen Appold is a medical writer in Lehigh Valley, Pennsylvania.