Since the passage of the Affordable Care Act in 2010, the challenge of actually offering “Affordable” coverage has been elusive. While premiums continue to rise, total costs have been further exacerbated by ever increasing cost sharing as consumers “buy down” to lower value plans. And now, with deadlines quickly approaching for carriers to file 2017 premium rates, we are hearing almost daily of a prediction of double digit increases on the horizon.
Haven’t we been warned before? Don’t get me wrong, premiums have historically gone up – both before and after the passage of the ACA. And, many have been predicting for years that premiums will spiral out of control. Well, 2017 may be just the year that proves these forecasts to be accurate.
While subsidies have helped to provide millions of consumers with affordable coverage (about 85% of all exchange enrollees are subsidy recipients), enrollment has been leveling off giving regulators and government officials a sense that they may have reached as many of their target population as they can. Few can argue that with the number of uninsured people now at a historically low level, the ACA has shown success based on this single metric.
Significant Increases Anticipated
But, facing consumers in 2017 might be the “Perfect Storm”. UHC is withdrawing from many Exchanges with other carriers making similar assessments. Enrollment continues to fall below projections necessary to sustain a reasonable spread of risk and those that do enroll are older and sicker – meaning costlier – than what was predicted.
As reported in previous blogs, 12 of the 23 Co-op’s created under the ACA have collapsed taking away many lower cost alternatives for consumers. At the same time, carriers are looking to withdraw Bronze plans from the Marketplace as these plans are the only metal level for which insurers of all sizes have to pay into the risk adjustment program which results in an unfair burden to smaller insurers.
If Bronze plans are harder to find, consumers will have to “buy up” to a Silver plan – or leave the market. Often, Bronze plans were favored among the young and healthy. It’s this exact group that may opt for paying a penalty rather than transitioning to a higher metal level plan. If that occurs, the coverage pools will further erode resulting in even higher costs as the selection spiral begins to spin out of control.
According to a recent report commissioned by the Robert Wood Johnson Foundation, “most people who lack health insurance say that costs are the main reason they don’t have it”. As prices spiral upward, enrollment will begin to fall.
Besides the “Perfect Storm” described above, other variables are in play that will drive premiums higher.
- Medical costs in the past few years have seen growth that has been very slow by historical standards. Many experts predict that beginning in 2017, costs trends will rise as a result of pharmaceutical companies bringing new and more expensive products to markets, rising hospital costs and more technologically complex treatments.
- The ACA’s risk adjustment programs will expire at the end of 2016. These programs were put in place to assist insurance carriers with patient specific catastrophic illnesses and helped subsidize a carrier’s total risk pool based on the early projections they needed to make on the distribution of customers they would attract. Some experts believe that these two programs alone were subsidizing rates by as much as 4 percent.
- Current premiums have not been sufficient. Whether carriers strategically kept premiums at lower levels to attract market share or simply just missed their projections, current premiums are not financially sustainable. Premiums need to rise just to get to a break even baseline (think, market correction) before accounting for future costs trends and increases in utilization.
As carriers complete their analysis and file their rates in the coming weeks, one thing is certain – premiums will be rising faster than previous years. According to Cynthia Cox, associate director of health care reform and private reform at the Kaiser Family Foundation, “That could result in many insurers having rate increases that exceed 10 percentage points.”
As these increases are finalized, they are sure to have an impact on the upcoming Presidential election. How much of an impact? Only time will tell.
Stay tuned as we continue to monitor the increasing costs of insurance and how brokers and agents can provide their clients with the most effective coverage solutions.
The views expressed in this post do not necessarily reflect the official policy, position, or opinions of BenefitMall. This update is provided for informational purposes. Please consult with a licensed accountant or attorney regarding any legal and tax matters discussed herein.