Insurance commissioners propose ideas to minimize 'rate shock'

A group of insurance commissioners is sharing ways states can minimize the likelihood of large premium increases, particularly for young adults, as major provisions of the Patient Protection and Affordable Care Act go into effect in 2014.

Several provisions of the law affecting the individual and small-group markets—such as essential health benefits, limits on age-rating factors, guaranteed issue and single risk-pool ratings—could make claims costs spike for insurers, leading to premium hikes, according to a draft paper titled “Rate Increase Mitigation Strategies” (PDF) presented today at the National Association of Insurance Commissioner's annual spring meeting in Houston.

The strategies suggested include capping rate increases, supplemental subsidy programs, and reinsurance programs that would supplement the federal government’s reinsurance program and better spread the costs of the sickest enrollees among insurers. The subsidy programs could be financed through increased revenue from premium taxes generated from higher premiums,

“States may consider establishing annual maximum average rate increases on an aggregate, marketwide basis and essentially force insurers to either operate at a short-term loss or find alternative ways to reduce costs,” a panel of the NAIC’s Health Actuarial Task Force suggests in the report.

A federally mandated change that limits the amount an insurer can charge an older person to a maximum of three times that of a younger enrollee means the latter is “expected to experience significant rate increases in 2014,” according to the report, which cites a study commissioned by Oregon that estimated rates for 21-year-olds may increase by more than 60% next year. Currently, most states have a 5:1 age-band ratio.

“Most of the strategies focus on creating a robust risk pool and encouraging full market participation across each state,” the report concludes, noting that some of the suggestions would require statutory changes.

The report comes at a time when the Affordable Care Act has come under increased scrutiny over studies predicting it will cause severe rate increases next year. For example, a study released March 26 by the Society of Actuaries found that the cost of medical claims will rise significantly by 2017 as a result of new provisions, driving up premiums an average of 32%.