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JAMA Forum Archive, 2012-2019: Health policy commentary from leaders in the field
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Reading the Tea Leaves on Proposed Health Insurance Premium Hikes in a Post-ACA World

Health economists and other experts generally expect that consumers will pay more for health insurance premiums year after year. That’s because 1 or more of the components of premiums—the cost of medical claims, administrative costs, or profits—are usually anticipated to increase at least as fast as the rate of medical inflation.

Gail Wilensky, PhD

Just how big the premium increases are likely to be each year is the great unknown—and for 2015, there are more uncertainties than usual. There’s been intense speculation about potential increases for next year’s premiums in the new federal and state insurance exchanges, partly because so little is known about (particularly regarding the health status of) those newly insured under the Affordable Care Act (ACA) and partly because of the potential political implications that 2015 premium increases might have for the 2014 midterm congressional elections.

What Do We Know Now?

Just as premium prices for 2014 varied widely, the proposed increases in premium rates for 2015 vary substantially across plans, within a state, and across states. Figures have been released for about a dozen states plus the District of Columbia. In most of the states, the health insurer with the largest number of newly insured under the ACA exchange, which frequently had offered the lowest or second-lowest premiums in their states in 2014, are proposing larger increases—either because they charged too little in 2014 or they feel they can tolerate some drop in enrollment. Plans that ended up with smaller enrollments in 2014 are requesting small increases and sometimes decreases in premiums.

Here’s a sampling of proposed increases:

Maryland. In Maryland, CareFirst, the dominant insurer in the state’s exchange in 2014, proposed a premium increase for the BlueChoice plan of almost 23%, compared with a proposed increase of 12% by Kaiser, which enrolled a relatively small number of people in 2014. Two new insurers, Cigna and UnitedHealthcare, are planning to offer plans in Maryland for 2015. Increased competition in other states has usually resulted in lower premium options being available; one would expect the same will happen in Maryland as well.

Virginia. The increases proposed for Virginia also vary significantly. Humana has proposed the highest increase (22.4%). Overall, the proposed increase in Virginia (when weighted by 2014 enrollment) is 11.7%. As in Maryland, 2 new insurers are planning to enter in 2015.

Washington: For Washington State, the weighted average increase is 9.6%.

Oregon. In Oregon, the health plan that had enrolled approximately three-fourths of the new enrollees has requested an increase of 12.5%.

District of Columbia. Most of the proposed increases for plans offered by CareFirst BlueCross, the largest insurer in the nation’s capital, range from 10% to 15%. However, the company is proposing a 25% increase for its bottom-level, catastrophic coverage plan.

What Happens Next?

The process by which health insurance rate increases are reviewed varies by state. In most states (35 states plus the District of Columbia as of 2012), prior approval is required by the insurance regulators before the insurer can raise rates. In Maryland, for example, a prior-approval state, the state’s insurance administration can ask insurers to lower their rates before it agrees to approve them. That’s what happened last year: CareFirst had initially proposed a 25% rate increase, but regulators cut the final rates by 10%—which may in part explain the large increase CareFirst has requested for 2015.

Other states may simply review rates or allow rate changes to go into effect after a certain period of time, with the state acting later if the rate is found to be unreasonable, but these types of reviews are becoming less common. Under the ACA, the Department of Health and Human Services (HHS) is authorized to review premium increases for states that are regarded as having ineffective review processes. Five states are in this category.

The ACA also authorizes HHS to review any rate increases that it regards as “unreasonable,” which the agency has defined to be increases exceeding 10%. The expectation had been that most insurers would keep their premium increase requests just below 10% to avoid HHS review—but obviously, that has not been the case for many of the proposed increases.

New Dynamics Being Played Out

Several types of responses by insurers are beginning to play out in response to the “first year” of experience with enrollees in plans offered by the health exchanges (in reality, only 2-3 months’ experience for many of the new enrollees). Some of the new entrants offering plans in the health exchanges in 2015 are some of the country’s largest insurers. Aetna, WellPoint, UnitedHealthcare, and others were deliberately very selective about the number of markets they entered in 2014, and planned to enter additional markets in 2015, when more information about enrollees was expected to be available. But most had not anticipated the size of the enrollment surge that occurred in late March nor the extension of the enrollment period to mid-April to accommodate glitches in the exchanges.

That means these insurers have less information for 2015 than they anticipated; most are submitting bids with little information on existing enrollees’ use of health care services and no information about how the enrollee numbers and mix might change with the next open enrollment period. Information reported to date indicates that the early enrollees attracted to the exchanges were sicker than average. This is not surprising, because the ACA doesn’t allow insurers to charge more for those who have a higher expected use (other than for age, and that variation is limited to a 3:1 price differential between the oldest and youngest enrollees).

Another wrinkle is that insurers are currently permitted to continue existing individual plans that do not offer the ACA’s specified “essential health benefits” (in states willing to allow this extension) until 2016. This further segmented the market, with younger and healthier enrollees likely to stay in their more limited plans. What is less clear is whether the surge of reportedly younger (and presumably healthier) enrollees who waited until late March to enroll will balance out the health status of the earlier enrollees.

Another uncertainty involves how the exchanges will affect costs related to Part D Medicare (Medicare Prescription Drug Coverage). Part D Medicare plans that propose the highest premium rate increases tend to lose enrollment to plans that have small ones, which has kept cost increases well below projections. But in the health insurance exchanges (where most plans have narrow physician networks), enrollees who switch plans are likely to lose access to the physicians in their previously held plan. On the other hand, because most people enrolled through the exchanges may not have had long-term relationships with the physicians in their plan, the barriers to switching may be lower than for other insured populations. Time will tell whether plan-switching in response to premium increases will also occur in the exchanges.

About the author: Gail Wilensky, PhD, is an economist and Senior Fellow at Project HOPE, an international health foundation. She directed the Medicare and Medicaid programs, served as a senior adviser on health and welfare issues to President George H. W. Bush, and was the first chair of the Medicare Payment Advisory Commission.  She is an elected member of the Institute of Medicine.
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