While not every state has finished collecting bids from insurers, payers have revealed their pricing strategies in California, one of the largest individual markets in the nation. Covered California, the state's exchange, also has offered enhanced subsidies since 2019 that are similar to the temporary increase in federal assistance introduced as part of COVID-19 relief this year, Gottlieb said.
Premiums will rise an average of 1.8% in California in 2022, essentially flat compared to the 1.1% hike for this year, according to documents insurers submitted to the state's managed care department.
A closer look at California's filings reveals how increased competition is affecting new entrants to the marketplace: Anthem, which effectively pulled out of California's individual market a few years ago, plans a 2% premium cut in 2022, while Oscar Health plans to increase rates by 8.6%.
The difference between the two companies is simple: One has enough money to accept lower margins or even losses in exchange for market share, and the other doesn't.
Anthem, which reported $1.8 billion in net income on revenues of $33.8 billion during its second quarter, can afford to tolerate a suboptimal financial performance in this market, while Oscar Health can't, Gottlieb said. Oscar Health reported a net loss of $73 million on revenues of $529.2 million for the quarter ended on June 30.
"They may be trying to price for what others call profitability, but what I call lower losses," Gottlieb said.
'It's a little fuzzy'
While every market is different, increased competition generally translates to lower premiums, and more entrants also mean lower profit margins, Gottlieb said.
The individual market has evolved to become one of the most profitable lines of business for insurers, second only to the lucrative Medicare Advantage market, according to data compiled by the Kaiser Family Foundation.
The Centers for Medicare and Medicaid Services does not want declining profitability to dissuade insurers from participating in the exchanges, said Adam Block, a health economist and associate professor at New York Medical College.
Last week, CMS announced it will direct $452 million from the American Rescue Plan Act to more than a dozen states' reinsurance programs, which directly compensate insurance companies for some of their most expensive claims and help prevent premium increases. While the cash will affect insurers' operations for 2021, the money will likely inform their pricing and subsidize their business for the years ahead, Block said.
"It's a little fuzzy," Block said. "They are going to get money that impacts 2021 plan year, but may get priced into the trend for 2022. But the trend for 2022 has already been priced into a lot of products. So maybe it's 2023."
Pandemic, regulations impact benefits structures
Uncertainty over the course of the pandemic and trends in telehealth will also impact premiums, Block said. Rates will be higher in regions with higher COVID-19 caseloads than in areas with fewer infections and higher percentages of vaccinated people, Block said.
Insurers recognize COVID-19 won't disappear, and will continue to factor it into their premiums and benefit designs, Block said. Insurance companies also will look for cues from employers like Delta Airlines, which will charge unvaccinated employees an extra $200 per month for health benefits.
"In the past, I have seen employers as being the followers and the insurers as being the leaders in changing benefits," Block said. "Now you see insurers recognizing that they have the flexibility to change things that are COVID-specific because they have virtually complete autonomy over their benefits. What I would expect them to do is to follow the leads of some of the employers in this space."
Of the 75 insurer filings so far submitted to 13 states and the District of Columbia, only 13 say the pandemic will drive up expenses, and most carriers expect excess costs will be less than 1%, according to a report the Kaiser Family Foundation published in July. A separate report from the American Academy of Actuaries this month found insurers are likely to make only small pandemic-related adjustments to their premiums for next year.
Insurers are also looking at the ways consumers used their benefits last year when structuring their plan options for 2022 and are offering more virtual-first plans, said Jean Abraham, a professor in the University of Minnesota's division of health policy and management. Payers are doing this to differentiate themselves from competitors, she said.
"I'm clearly seeing an increasing in insurers marketing and promoting the ability of enrollees to access virtual care at low or no out-of-pocket cost," Abraham said.
Regulatory changes like the end of enhanced unemployment benefits and a moratorium on Medicaid eligibility redeterminations are also likely influencing rate setting, said Brad Ellis, senior director of insurance at Fitch Ratings. "It's a fine line to walk," Ellis said. "You've gotta make sure that you're covering the costs, but still competitive."