Spikes in insurance premiums expected for 2015

Premiums on the Obamacare insurance exchanges for individual-market plans are likely to rise significantly for 2015—in some cases by double digits—but those spikes may be lower than some had predicted.

Experts say insurers appear to be taking a cautious approach to setting rates largely because they have little information about their emerging customer base. But increased competition in the online marketplaces is likely to keep premiums down. Rates in the individual market typically rose steeply before the Patient Protection and Affordable Care Act took effect, and it remains to be seen whether that will change under the law.

Insurance premiums could be a potent political issue in the November congressional elections, with Republicans pointing to any major increases as evidence that Obamacare is a failure. Democrats are hoping the increases are moderate, and the Obama administration and state Democratic officials are expected to put pressure on insurers to keep them down.

Analysts at J.P. Morgan concluded from the initial flurry of proposed rates and conversations with insurers that 2015 premium increases are likely to be more modest than some observers anticipated. “Although still likely large enough to draw political criticism, we view hikes at this level as relatively modest in relation to the highest expectations given several factors pressuring rates,” according to the investment firm's analysis.

Insurers are just beginning to file proposed 2015 rates in states across the country, with some rates published in Arizona, Indiana, Kentucky, Virginia and Washington state. Maryland's and Colorado's are expected soon. The filings will be scrutinized by regulators and in some cases rejected if the regulators decide insurers haven't provided sufficient justification for increases. Insurers are filing rates with little information about how expensive their new customers will be. That's in part because many Americans signed up in March and April during the final, frenetic weeks of open enrollment.

Insurers are “still shooting in the dark,” said Jon Kingsdale, director of Wakely Consulting Group's Boston office.

In Arizona, Humana is proposing average increases of 25.5% for plans sold inside and outside of the federal exchange, while Cigna Corp. is proposing average increases of 14.4%. The only rates published in that state, however, are those from insurers proposing increases of more than 10%, because a public comment period is required for hikes of that size.

In Washington state, Group Health Cooperative and Coordinated Care Corp. proposed average rate hikes of 11.2%, while Molina Healthcare of Washington proposed decreasing its premiums by 6.8%.

In addition, more Washington insurers have announced they will offer plans on the state exchange in 2015, and they will be offering more plans. That could enable consumers to shop around for new plans if they want to avoid higher premiums. A dozen insurers submitted 114 plans for sale on the exchange for next year, compared with eight insurers selling 46 plans this year. Among the new players in the market is UnitedHealthcare, the country's largest insurer, which has indicated it will participate more broadly in exchanges around the country in 2015.

In Virginia, proposed increases range from 3.3% for Kaiser Foundation Health Plan of the Mid-Atlantic States to 14.9% for CareFirst BlueChoice.

Kentucky asked insurers to submit their proposed rates by May 1, but they can continue to submit filings after that deadline. Proposals submitted have ranged from flat premiums to increases of 16.7% for products. Kentucky Health Cooperative, a new consumer-governed plan that captured 75% of the state's exchange market during the 2014 open enrollment period, is proposing premium increases of 9.9% for the individual market and 6.5% for the small- group market.

Increases around the country are being driven in part by a reduction in 2015 in the federal reinsurance funds available to subsidize insurers with more expensive customers. In 2014, there was $10 billion available from the federal government to help cover the costs of individuals with more than $45,000 in claims. That figure will be reduced to $6 billion for 2015. The American Academy of Actuaries anticipates that insurers' claims costs will increase by 4% to 7% because of that reduced funding.

Rate hikes are also being driven higher by the premium tax established by the healthcare reform law to help pay for federal premium subsidies. That's anticipated to add 0.7% to rates for 2015.

Cathy Murphy-Barron, chair of the American Academy of Actuaries' committee on federal health issues, cautioned that drawing conclusions about the broader insurance market for 2015 from any one state is problematic. Each state has its own risk pool with unique demographic characteristics.

Rates also vary significantly by local market within each state, and are affected by how many insurers are competing, the makeup of the provider market, the health of the local population, and the percentage of residents in the state and the local market who sign up for coverage.

Follow Paul Demko on Twitter: @MHPDemko