Six reasons insurers will hike exchange premiums in 2017

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:

1. Profitability concerns

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.

2. Federal programs that weren't as successful as expected

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.

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