Some are touting ObamaCare's mostly modest-to-moderate premium hikes for 2015 as evidence the law is working just fine, but the news isn't as good it seems.
Take Connecticut, where top exchange player Anthem Blue Cross Blue Shield recently said it will cut premiums 0.1% next year — after first proposing a 12.5% rate hike.
Several factors account for the turnabout, but temporary government supports and arm-twisting by Connecticut's insurance department both loom large.
The state actuary figured that ObamaCare reinsurance, which will offset insurers' bills for their costliest members through 2016, could boost Anthem's (WLP) bottom line by $72.40 per member per month.
Simply because the Obama administration delayed by a year the phase-down of reinsurance payments, the state dictated that 2015 premiums must be set 8% lower.
Yet the primary justification for those extra government payouts — the White House rule allowing individuals to keep plans that don't meet ObamaCare standards — doesn't even apply in Connecticut or a dozen or so other states.
'No Actual Experience'
Only as government supports are withdrawn and the land-grab stage of ObamaCare enrollment winds down can premiums be expected to reflect the reality of the insured pools' costs. That's why it's probably not great news that premiums may rise by near double-digits or more in some states, and it's too early to spike the football in states where premium hikes will be contained.
The truth is that no one really knows where premiums should be set in 2015. Connecticut regulators said as much in rejecting Anthem's proposed rate hike.
Officials had a simple reason for discounting Anthem's projection that newly insured young adults would let their policies lapse at higher rates: "Anthem has no actual experience on which to base the change.
Likewise, Anthem said its limited experience with the exchanges in '14 "is not deemed credible for purposes of rate development.
The only solid information insurers have to go on is the competitive landscape of the exchanges.
Anthem's rate cut came on the heels of No. 2 player ConnectiCare settling for a modest 3.1% hike — after the state rejected a proposed 11.8% boost. Meanwhile, co-op HealthyCT cut rates by 8.5%.
Competition will always be key in setting exchange rates, but insurers are much better off erring on the side of too-low prices now than they will be in years to come.
That's in part because 2015 will be the next-to-last big wave of ObamaCare sign-ups. The Congressional Budget Office expects enrollment to jump from 6 million to 13 million, and to 24 million in 2016.
Also, the Obama administration has opted to let subsidized enrollees renew without reapplying via exchange websites, which will tend to make for a stickier relationship between insured and insurer.
In other words, it will be harder to boost enrollment via competitive pricing in future years, while the risk of pricing too low will rise as temporary supports fade.
The Milliman actuarial firm found that older adults and females might be more profitable for insurers than young adult men in ObamaCare's initial year. That's due to the interaction of temporary government supports with risk adjustment, a permanent ObamaCare feature that has insurers who attract a healthier pool make payments to those with a sicker-than-average pool.
Such incentives and competitive factors help explain why, according to HealthPocket, the lowest-priced exchange policies were 35% less than the lowest-priced plans from insurers competing only off the exchanges, who are ineligible for government support.
HealthPocket researchers noted that lower premiums don't necessarily equate with better value, adding that one source of the price differential may have been that off-exchange providers offered wider networks of doctors and hospitals.
Roughly half the states give insurance commissioners the final say over premiums and that seems to be a significant factor in holding down rate hikes.
Florida's Premium Pricing
In Florida, where Republicans voted to suspend for two years the regulatory authority to challenge rate hikes, insurers plan to raise premiums a weighted average 13.2%, the state insurance office said. (PriceWaterhouseCoopers put the average increase in Florida at 7.4%.) California regulators lack authority to challenge insurance rates, but November's Proposition 45 ballot initiative would buttress officials' power to regulate premiums.
Hopes of defeating the initiative may be one reason California insurers have proposed tame 4.2% premium hikes for 2015, insurance consultant and ObamaCare skeptic Robert Laszewski has written.
Still, regulators' power to curb premiums will wane once experience provides a reliable basis for setting rates. Differences over the value of temporary government supports also will become a non-issue.
Whether Connecticut's actuary is right about how much reinsurance support insurers will get remains to be seen because there's a limited pot of federal funds available.
The tax on insurance policies that feeds into reinsurance payments will shrink to $44 per policy in 2015, which is expected to raise $6 billion for reinsurance. That's down from $10 billion raised from this year's $63 tax. But Connecticut regulators predicted that enough will be left over from 2014 to meet the more generous reinsurance specifications set for next year.