Health Insurers File Next Year’s Rates
If you have a health insurance policy from one of the marketplaces established by the Affordable Care Act, commonly referred to as Obamacare, then you probably want to pay close attention to the filings that your insurer made this summer. In late June, all of the insurers on the ACA marketplaces had to file their proposed premium rates for 2018. If you were expecting premiums to drop or remain the same you were probably disappointed.
These insurance filings declare which insurers will participate in which regional insurance exchanges, as well as any changes in premium rates. A survey by consultancy Oliver Wyman found that many insurers dropped out of many markets which in turn left fewer choices for consumers. The survey also found that most remaining insurers are requesting rate hikes, with more than half asking for increases of 20 percent or more. This is the third year in a row that insurers have asked for significant rate increases.
What is Driving Higher Rates?
There are many factors that influence health insurance rates on the Obamacare exchanges, but probably the most important is the uncertainty that most insurers feel in the current business environment. In the past few months, since President Donald Trump entered office, Republican lawmakers have been strongly pushing for the repeal and replacement of the Affordable Care Act. Both the House of Representatives and the Senate have presented their versions of ACA repeal bills, and while the House was able to pass its bill, the Senate repeatedly failed.
Although unsuccessful, these reform proposals roiled the insurance markets. Many insurers were unsure if the Affordable Care Act would remain in effect in 2018, and this uncertainty helped inflate premiums. It also didn’t help that President Trump was relying on Congress to present him with a health care reform bill and had threatened to discontinue cost sharing subsidies—that help pay for premiums on low cost Obamacare health plans—if Congress failed. Although the Trump administration continues to make these subsidy payments, insurers are not sure that it will do so in the future; without these payments, premiums on all health plans will rise.
One promise that President Trump has kept is eliminating the Individual Mandate. The deeply unpopular Individual Mandate is the provision in the Affordable Care Act that financially penalizes people without health insurance. This provision was intended to force younger and healthier people into the insured population, thereby helping offset the insurance costs for everyone. However, President Trump ordered the Internal Revenue Service to stop enforcing the Individual Mandate shortly after he took office.
Insurers are very unhappy that enforcement of the Individual Mandate has stopped because it will likely lead to only a population of people with pre-existing health conditions obtaining health insurance. Because healthier people will not be buying into the system, the high costs of insuring the remaining sicker insured will have to be shouldered by insurers—who will then transfer the costs to policyholders in the form of higher premiums.
In the first few years of the Affordable Care Act, the insurers received payments from the federal government to help pay for high cost enrollees, but these payments are coming to an end. Unfortunately, many of high cost enrollees are still insured, costing insurers more than expected and driving up premiums for everyone on the exchanges.
Finally, there is the issue of health care inflation. The cost of medical services is expected to rise sharply in 2018 after a few years of relatively slow growth. Since a high of 11.9 percent inflation in 2007, the rate at which health care costs have grown has predominantly shrunk annually, but next year, it is projected to rise uncharacteristically. Health care inflation was 6.2 percent in 2016 and 6.0 percent in 2017, but is expected to balloon to 6.5 percent in 2018. This accelerated cost curve is also helping to fuel health insurance premium spikes.
What Happens Now?
Although the insurers filed their rate proposals in June, state and federal insurance agencies must still approve them. While it is likely that the government administrators will approve them in an effort to maintain insurer participation, that approval is not guaranteed. If the government refuses the proposals then it must negotiate an acceptable rate with the insurer or the insurer has the option to leave the market. Insurers like Humana and Aetna have already announced that they will not be participating in the ACA exchanges in 2018.
Despite the bad news this summer, there is reason to be optimistic. Many of the sickest people who got health insurance in the past few years have improved and, therefore, are costing insurers less to cover. Going forward, many experts believe that the insurance markets should stabilize and annual rates should increase at a more modest rate. The credit rating firm S&P Global Ratings estimates that next year, the average premium hike will only be 15 percent compared to the 25 percent in 2017 and 12 percent in 2016.
Much of the uncertainty regarding a repeal of the Affordable Care Act should disappear now that Republican initiatives have collapsed. With a full schedule for the remainder of the year, it would be nearly impossible for Congress to return to the issue this year. Therefore, it is an almost certainty that the Affordable Care Act will continue to be the law of the land through 2018.
There is some good news for many people on Obamacare health plans. Almost 85 percent of the policyholders of ACA policies receive subsidies from the government to help lower the monthly premiums. For these policyholders, it is highly unlikely that they will notice any rise in premium costs because the government is legally obligated to raise subsidies to cover any increase in premiums.
If you would like to learn more about the Affordable Care Act and how it may benefit you and your family, please visit Boost Health Insurance. We offer a wide selection of ACA health plans that can protect your family.