After two years of relatively flat insurance rates, insurance premiums for health plans sold under the Affordable Care Act (ACA) may jump dramatically next year.
Insurance companies have started to file their rate increase requests for ACA plans in 36 states.
The requests listed on the healthcare.gov site are for any hikes above 10 percent. The proposed increases go as high as 60 percent.
United Healthcare has filed a request to raise insurance premiums by an average of 18 percent on plans in Florida, according to a report on CNN.
Scott & White insurers are seeking a 32 percent increase for their health plans in Texas. Blue Cross and Blue Shield in North Carolina wants 26 percent more for its plans.
The companies will not actually get the green light for increases this large, experts said. Regulators in individual states are expected to negotiate lower rates with the companies, but some experts say you can expect increases above 10 percent in many regions.
“Requests of this magnitude are not shocking,” said David Dranove, Ph.D., a Northwestern University business professor who co-authors a blog on healthcare. “The Affordable Care Act and the [healthcare] exchanges are a whole new ballgame.”
However, other experts say it’s too early to tell.
Cynthia Cox of the Kaiser Family Foundation notes the only insurance requests on the government site are above 10 percent. There may be other single-digit requests that will bring down the average and force other companies to lower their expectations.
More Data, ‘Low Balling’ May Be at Work
There are several reasons for the insurance premium hikes expected next year, Dranove said.
The first is that 2016 will be the third year of healthcare plans under the ACA. Insurance companies now have one to two years’ worth of data on which to base their estimates.
Insurance enrollees have turned out to be older and less healthy than originally anticipated, Dranove said. That costs the companies more money.
Medical costs, especially prescription prices, are also going up. Dranove said that would likely continue as the U.S. economy expands.
Cox agrees healthcare costs are starting to rise. However, she said there are some “downward pressures,” too.
More insurance firms will continue to join the exchanges, increasing competition. And the pent-up demand for healthcare will increase the number of clients, potentially bringing down costs.
Cox and Dranove both said there may have been some “strategic pricing” during the first two years of the ACA exchanges. Insurance companies may have “low balled” some premiums to draw in new clients, according to Dranove.
Since customers generally don’t switch insurance plans even with rate hikes, the theory is the insurance companies will make more money in the long term by initially offering lower rates.
Dranove advises consumers to shop around during renewal time.
“Don’t just re-enroll,” he said.
The Insurance Industry’s View of Things
Clare Krusing, press secretary for America’s Health Insurance Plans, agreed there is more information available now.
Insurance companies will have “relatively solid claims data” on enrollees and medical costs for the first time in 2016, she said.
In addition to older enrollees and rising drug prices, some programs included in the ACA rollout intended to keep costs lower are ending next year.
One of them is the “reinsurance” program that spread the financial risks across all insurance companies to help out companies that took on potentially expensive clients.
“Premiums cannot be viewed in isolation,” said Krusing. “It’s critical to look at the individual market dynamics that impact how much consumers pay for their healthcare coverage and the factors, like provider consolidation and exploding prescription drug prices, that drive up premiums across the country."
What the Future Holds
It’s difficult to predict if the 2016 insurance premium hikes will become a pattern of rising costs because there are so many factors at play.
Taxes may eventually have to go up to pay for the healthcare subsidies now offered by the federal government.
“That’s going to have to be discussed,” Dranove said.
There’s not much Congress can do now to significantly change the ACA because of the veto power held by President Obama. That could change dramatically depending on who is elected to the White House in 2016.
The other major looming question is the outcome of the King v. Burwell case currently being considered by the U.S. Supreme Court. The case centers on whether the federal government can provide tax credits for federal subsidies offered in the states that do not offer their own insurance exchanges.
If the court strikes down the subsidies, that would most likely result in a large jump in out-of-pocket expenses for consumers who sign up for those plans.
Dranove said it could create a “death spiral” where people drop their health insurance plans, choosing to pay a fine rather than pay for premiums because it’s cheaper. The smaller client base could then cause insurance premiums to rise further, causing more people to drop out and so on.
No matter which way the decision goes, Cox said at some point insurance premiums will go up. It just might not be next year.