Health insurers' proposed 2018 rate hikes are early 'warning signs'

Health insurers are asking state regulators to approve giant rate increases for 2018 individual policies, in part because they don't yet know if the Trump administration plans to help or hurt the Affordable Care Act's health insurance exchanges.

Insurers in the three states that have published requested rates say their double-digit hikes, which exceed 50% in some cases, may climb even higher if the federal government doesn't take steps to ease their jitters over ACA repeal-and-replace efforts by funding cost-sharing reduction subsidies and enforcing the mandate that requires most people to enroll in coverage. The sky-high increases, though not final, would leave health insurance unaffordable for many Americans.

The severity of the requested rate hikes was a surprise to health insurance experts who assumed the large increases experienced in 2017 were a one-time correction by health insurers that initially priced their plans too low. A few studies showed the market was improving, and experts expected more modest rate increases in 2018 as insurers grew closer to making a profit or at least breaking even.

But the early filings tell a different story.

"There are warning signs here," said Joel Ario, former director of HHS' office of health insurance exchanges and a managing director at consultancy Manatt Health. "We still need some market stabilization. We are still not out of the woods."

Connecticut, Maryland and Virginia have released the rates filed by health insurers for 2018 individual plans. In some cases, insurers requested dramatic rate increases. In Connecticut, where there are just two insurers selling individual plans next year, rate increases range from 15% to 34%. Most of Virginia's health insurers asked to hike rates by double digits, with one requesting more than 50% rate increase. In Maryland, rate increases range from 18% to nearly 60%.

The big rate requests in these three states offer a glimpse into what insurers may be planning in the rest of the country. "These states are showing consistently big premium increases, and it does point to the likelihood we'll see that in other states as well," said Larry Levitt, senior vice president of the Kaiser Family Foundation.

Health insurers asked for big rate increases for a myriad of reasons, but in most cases, the question mark driving a big chunk of the rate hikes is whether key Obamacare-era provisions will remain in play in 2018. Those provisions include the individual mandate penalty that drives people to enroll in coverage and the cost-sharing reduction subsidies that help low-income members afford the coverage.

The same pervasive uncertainty over the future of the individual market led several states to extend the deadlines for insurers to file 2018 rates in hopes that an extra few weeks to price plans would be enough to ease the insurance industry's jitters over repeal-and-replace efforts and keep them from bailing on the exchanges.

Uncertainty isn't the sole reason rates are going up. Insurers said the pool of individual plan members is growing sicker because fewer healthy members are signing up for coverage. Enrollment in the Affordable Care Act's insurance exchanges dropped to 12.2 million this year, down from 12.7 million in 2016. The return of the health insurer tax, and the failure of ACA programs meant to help insurers mitigate risk also helped increase rates.

Still, uncertainty is a big driver. Health insurance actuaries build rates by estimating claims costs and administrative expenses, and then they tack on a profit margin, explained Rick Diamond, a former actuary with the Maine Bureau of Insurance who is now a consultant.

It's much more difficult for an actuary to make those assumptions when the rules of the market could change at any time, Diamond said, so insurers will "err on the side of caution and make sure they don't lose their shirts."

In Maryland, insurer Evergreen Health—the failed co-op that resurrected itself as a for-profit insurer—asked for a 27.8% average rate increase for individual plans on and off the state's ACA marketplace. About half of that hike is driven by uncertainty over the future funding for cost-sharing reduction payments, enforcement of the penalty for not having insurance, and losses from the ACA's risk adjustment program, CEO Dr. Peter Beilenson said. Rising medical costs account for part of the rate increase, but that isn't the driving factor.

Insurers are more concerned about whether the Trump administration plans to enforce the individual mandate, he said. Evergreen's rates are about half that of its competitor CareFirst's, so Beilenson said he expects to attract a larger share of the individual market than in years before. Evergreen isn't selling individual plans in 2017. In 2016, it insured 12,000 individual members. It expects to cover between 5,000 and 7,500 in 2018.

If the penalty isn't enforced, or if the Trump administration again decides not to support exchange enrollment through advertisements, "our hypothesis is there will be a significantly lower number of people joining the exchanges … and they will be sicker," Beilenson said. That's because young, healthy people will be more likely to drop insurance, while the sickest, costliest members will remain.

CareFirst, a Blue Cross and Blue Shield company, asked for a 52% increase on average in its Maryland individual plans, both on and off exchange. It is also requesting hikes of 35% in northern Virginia and 29% in Washington, D.C. CareFirst covers about 215,000 individual members in those three areas.

The not-for-profit insurance company's CEO Chet Burrell told reporters that the rates reflect that the pool of members enrolled in its ACA plans is growing sicker because fewer healthy people have signed up for coverage. Evergreen hiked premiums further because it believes the Trump administration won't enforce the individual mandate penalty in 2018, which will worsen the problem as young people drop insurance, Burrell said.

Enforcing the mandate "is the single most critical action," Burrell said, adding that CareFirst would consider reducing its rate hike requests if "there was a clear and compelling statement made by the administration that it would enforce the individual mandate," or if the CMS paid the more than $8 billion it owes insurers in risk-corridor payments.

CareFirst and Evergreen both assumed the cost-sharing subsidies would continue to be funded. But CareFirst said it would bump up its rates as much as 10% to 15% if the federal government decides not to make the payments that help lower income enrollees afford coverage. Evergreen said it won't be able to adjust its rates further, per Maryland's rules.

CareFirst expects that its cumulative losses on its ACA plans will reach $600 million by the end of the year. The individual market accounts for about 7% of its business.

National for-profit insurer Anthem, which covers 1.6 million individual members across several states on and off the ACA's exchanges, requested 2018 rate hikes of 33.8% in Connecticut and 37.7% in Virginia on average. For 2017, the Indianapolis-based insurer asked for a 26.7% average increase on individual plans in Connecticut, and the state eventually approved a 22.4% increase. In Virginia, Anthem's rates rose 15.6% on average in 2017.

"The dynamics and level of volatility" in the individual market are driving Anthem's steep rate increases, a company spokeswoman said in a statement. The rising cost of medical services and higher pharmacy expenses were also factors.

Like other insurers, Anthem also assumed cost-sharing reduction subsidies would be funded in 2018. But if there's no word by June that the subsidies will be paid, Anthem said it will evaluate changes to its filing, including requesting higher rates, eliminating plans or exiting the market altogether.

ConnectiCare, one of two insurers selling individual plans in Connecticut, requested to increase rates by 15.2% on average. A spokeswoman for the company, which is a subsidiary of New York insurer EmblemHealth, said the proposed rates reflect legislative and regulatory uncertainties surrounding the "weakening of the individual mandate" and the funding for cost-sharing reduction subsidies, as well as higher medical and pharmacy costs and increased utilization.

ConnectiCare insures nearly 89,000 individual members, including 51,000 on Connecticut's state-base exchange.

It's important to note that insurers' proposed rates will change as state insurance regulators review them in the coming months. Some will go down, and some may even go up, depending on how aggressive a state's insurance commissioner is, Diamond said. At the same time, commissioners who are facing a dwindling number of insurers may be willing to give an insurer what it wants for fear of losing another one, he said.

Manatt's Ario said the rate hikes demonstrate the need for more programs and policies to stabilize the individual market, which enrolls a total 17.3 million people on and off the exchanges. The Trump administration has introduced some changes, including a market stabilization rule aimed at making the individual market more profitable for insurers, some of which have lost millions over the years. But insurers say more needs to be done.

In addition to confirming that the cost-sharing subsidies will be paid and the individual mandate enforced, Ario said the new reinsurance program, introduced as part of the GOP repeal-and-replace bill, the American Health Care Act, is a "powerful" idea that could tackle the big rate increases.

The AHCA, which passed the House last week, includes $100 billion over nine years for reinsurance. A similar program was included in the ACA, but the GOP bill offers more generous amounts over a longer period.