People who have or are about to shop for health plans on Obamacare's insurance marketplaces this week are understandably concerned about how much money they'll have to pay for that coverage. Early analysis of state rate filings show that health insurers are generally keeping premium increases tame for consumers next year, but that depends largely on where payers are operating.
The big-picture takeaway is exchange premiums are not likely to spiral out of control next year, many observers say, mostly because more insurers are entering the marketplaces and are forcing competitive price adjustments.
“This tells you that the exchange market seems to be settling into a logical, paralleled place and not the crazy, double-digit increases that some people feared,” said Ceci Connolly, managing director at PricewaterhouseCoopers' Health Research Institute.
However, health insurer competition and pricing remains far from uniform—particularly in rural areas with few insurance options.
The average 2015 premium increase across 41 states and the District of Columbia that have reported data to their respective insurance departments is about 6%, according to the latest research from PwC's Health Research Institute. That drops to 3.5% when only factoring in rates that have been finalized in seven states and D.C. When compared to employer-sponsored coverage, individual-market premium increases are fairly comparable.
Findings appear to be similarly optimistic in a new report from the Robert Wood Johnson Foundation and the Urban Institute. Researchers found that nongroup premium increases in 17 states and D.C. will be “quite low” and will actually decrease in some areas. For example, the average premium for the lowest-cost silver plan for a 40-year-old in Colorado will be $231 next year. Silver plans are some of the most common choices for consumers, and they pay about 70% of medical costs. When analyzing plans only sold on Colorado's exchange, premiums will be almost 11% lower compared with 2014.
“I don't think you're going to see the national picture diverge much from this,” said John Holahan, an Urban Institute fellow and one of the report's authors. “It is a reasonably positive story.”
For Cynthia Cox, a senior policy analyst at the Kaiser Family Foundation, competition is an overarching factor for 2015 premiums. The not-for-profit group put out a report in September saying that although there is a wide range of rate increases, premiums for bronze and silver plans won't skyrocket next year as more payers reach for a piece of the exchange pie.
Many insurers stayed on the sidelines in year one of the Affordable Care Act's open exchange enrollment, or they made only modest investments. UnitedHealth Group, the largest insurer in the country by revenue, is a primary example.
Now, more carriers like United are jumping in and pricing competitively because data are available on what was charged to consumers. Some estimate the number of health insurers in 2015 will be 26% higher. Kaiser said many states, notably Michigan, Ohio and Washington, will see some of the biggest increases in insurer participation.
“New entrants are driving most of (the premium trends for 2015),” Cox said.
However, averages can be misleading, and consumers really won't know their monthly obligations and plan options until they start shopping Saturday. For people using HealthCare.gov, they can already start browsing and comparing health plans through a new window-shopping feature.
Also, in some states, exchange rates may be cast in politically favorable ways. In September, Minnesota said the average rate increase for exchange plans will be 4.5% next year. However, that rate only factored in plans that were on the exchanges this year and will participate again next year. PreferredOne, the Democrat-led state's most popular exchange plan, said this year it is dropping out of Minnesota's exchange, as the insurer priced its plans too low and consequently absorbed high medical costs. While the 4.5% hike is modest, it will not apply to people who had a PreferredOne plan and will be jumping to a more costly option.
Experts also note that location is a key consideration when looking at rates, as a premium decrease in one part of the country or state could be contrasted with a massive spike in another. Analyses show the mild premium hikes or decreases will be found in urban areas like Baltimore, Cincinnati, Denver or Detroit. Consumers in rural areas, however, will face higher rates.
For example, in 13 rural Michigan counties, the average premium of the lowest-cost silver exchange will increase 11.1%, according to the Urban Institute. The average premium in Detroit, by contrast, will fall by 0.4%. Rural areas in Maryland, New York and Tennessee will also see larger exchange-plan rate hikes compared with their urban counterparts.
Lack of competition is part of the reason rates will be higher in those areas. But experts say other factors are pushing the wild variation.
PwC's Connolly said many insurers wanted to come into the exchanges last year with very low premiums to capture large percentages of the market— such as Blue Cross Blue Shield of Tennessee and other Blues. Consequently, insurers will have to raise their rates as they learn more about how their enrollees use healthcare services. Caitlin Sweany, a senior manager at PwC's Health Research Institute, said Blues plans have proposed rate increases of 9% on average. But in some instances, the rate increases overshadow premiums that still have reasonably low prices. In Tennessee, the average lowest-cost silver plan will cost $231 per month—only two of 18 states the Urban Institute studied have lower overall premiums.
Insurers also had little hard data on which to base their first-year rates, said Audrey Halvorson, a health practice leader at the American Academy of Actuaries and the chief actuary at Blue Cross Blue Shield of Arizona. They had no definitive data on what their exchange membership was going to be. Insurers also had little to work with when creating 2015 rates, as most carriers filed proposals earlier this year with only scant information about their new ACA-compliant exchange plans.
“There is still a lot of uncertainty of what the costs are going to be,” Halvorson said, noting that insurers also have to guess on their risk adjustment payments for 2015. Risk adjustment—which redistributes funds from insurers with low-risk members to insurers with sicker, higher-risk members—is one of three ACA subsidy provisions that helps payers maintain stability during the early years of the rollout. Insurers didn't know their risk adjustments until after they filed proposed rates, Halvorson said.
John Kelly, a consultant at health technology firm Edifecs who focuses on the payer space, said any kind of actuarial market like health insurance takes “three to five years to achieve some kind of equilibrium.” Like Halvorson, Kelly said 2015 premium rates reflect the evolving assumptions of insurers in the new individual and small group markets, and they are making long-term “strategic bets” to stay in it.
“Everybody still believes everyone should have affordable care,” Kelly said. “That market is clearly building.”