The Obama administration postponed a portion of the employer mandate in the Affordable Care Act in order to avoid paying the political consequences of a market disruption in the group insurance sector. If new premium pricing proposals from insurer filings in the states of Virginia and Washington come to pass, the White House may have no way out of accountability for their health-care reform folly.
When Obamacare first rolled out last fall, the failure of the federal and state exchanges were only the first signs of disaster. Premiums spiked upward in both the individual and group markets, and insurers raised deductibles and narrowed provider networks to save themselves money. Millions of people lost their existing insurance plans in the individual market, and many ended up in plans that either didn’t fit or cost far more than they spent in the past.
The law’s supporters claim that the higher prices result from better coverage, but that depends on one’s perspective. The main point of Obamacare was to provide insurance to the uninsured, but the “enrollment” numbers showed that precious few of those actually gained coverage. The White House announcement of 8 million enrollees turned out to be more like 6.65 million when discounting those who hadn’t paid their first premium, just barely above the estimated 5-6 million who lost their existing plans after the coverage mandates were imposed.
The numbers get worse when looking at how many of these enrollees were previously uninsured. Earlier estimates put that number at around a third, but a new study from the McKinsey Center for US Health System Reform pegs the number lower at 26 percent. When filtering out those who have paid their premium, the number drops to 22 percent of the administration’s claimed enrollees, or about 1.7 million people.
Most of the individual-market enrollments were simply churn created by the market disruption of Obamacare itself. Those enrollments barely made a dent in the claimed numbers of the uninsured, estimates of which range between 30-40 million.
Now that insurers have seen the composition of their new risk pools under Obamacare, they have to calculate their new pricing levels for state and federal regulators. The pricing jump for 2014 was more speculative, based on the presumed demographic composition of incoming enrollees. The pricing proposals from Virginia and Washington indicate that the new enrollments made the risk pools riskier than first thought.
Rate-proposal filings in the state of Washington show the four largest insurers proposing average increases across their plans ranging from 8.1 percent to 11.2 percent in a single year. Jonathan Wu of Value Penguin analyzed the proposals and concluded that the insurers tried betting on success, and came up short. “What is troubling about the data is that among these insurers, there is clearly an issue with the premiums offered in the first enrollment period,” Wu writes. Noting that the four companies offered the lowest prices in the market this year, their enrollment numbers are not surprising, but their consumers may get a less-pleasant surprise by the end of the year.
In Virginia, two insurers control 86 percent of the market, and both propose steep increases in 2015 premiums. Anthem, which has 113,614 of the roughly 170,000 enrollments, wants to boost prices by an average of 8.5 percent next year, while CareFirst wants a hike of 14.9 percent. All five insurers in the Virginia exchange want price hikes, with only Kaiser’s proposal falling below an 8.5 percent increase. If the Obamacare experience in these two states provides any indication, Wu writes, “then consumers might need to brace themselves for rate hikes in the coming months.”
So much for bending the cost curve downward.
That brings us to the group-insurance market, where most Americans get their health insurance. Shortly after the passage of the Affordable Care Act, the Department of Health and Human Services produced an analysis that predicted the employer mandates and increased costs would force “66 percent of small employer plans and 45 percent of large employer plans” to be canceled. That was the “mid-range” estimate, one that went unnoticed until the mass cancellations of plans in the individual market.
As Forbes’ Avik Roy argued at the time, it meant that the churn in the individual market provided just an appetizer to the main course of market disruption that will come this fall.
The White House has been attempting to avoid its consequences ever since. They have delayed the implementation of the employer mandate for businesses with fewer than 200 employees until 2016, and pushed open enrollment this fall for 2015 until mid-November – well after the midterm elections.
However, the steep price increases coming in this market already have businesses looking at bailing out of health coverage for their employees, NPR reported this week, with the impossibly sunny spin that employers had begun considering plans to “give workers a chunk of cash” to get pushed into the individual markets.
Ignoring months of failures in federal and state exchanges, NPR’s Michelle Andrews quoted one expert as saying, “The technology has caught up with the concept.” That would be news to states like Oregon, Massachusetts, and Maryland, which had to dump their exchanges and start over from scratch, or anyone who expected Healthcare.gov to track the simplest data – such as whether an enrollee actually paid a premium.
Another NPR report this week got much closer to the truth of why businesses want to get out of health insurance coverage. Sarah Jane Tribble profiled AmeriMark, a catalog retailer with 700 employees that has long provided coverage for employees. However, the premiums for their 2013 plans escalated 30 percent for 2014, so they switched carriers and forced employees to pay a higher share of premiums with higher deductibles and co-pays.
AmeriMark is planning for an 8 percent increase for 2015 and expects to keep insurance coverage – for now. If prices continue to escalate, AmeriMark President Louis Geisler warned, that decision will likely change.
Geisler won’t be alone in that decision. Businesses will have to react to dramatic price increases, either by passing them onto the employees and eating into their wages or by passing them along to the consumer. When insurers start making their new prices public, the resulting market churn will make this past fall look like a mere frolic.
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