Key Obamacare premiums to rise 25% next year; Great for insurers, but enrollees also win

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Premiums for mid-level Obamacare health plans sold on the federal exchanges will see their biggest jump yet next year, another speed bump in the administration’s push for enrollment in the final months of the US president’s term.

Premiums for mid-level #Obamacare health plans will see their biggest jump yet next year Click To Tweet

Monthly premiums for so-called benchmark silver-level plans are going up by an average of 25% in the 38 states using the federal HealthCare.gov website, the US Department of Health and Human Services said in a report Monday (pdf) (October 24, 2016). Last year, premiums for the second-lowest-cost silver plans went up by 7.5% on average across 37 states, according to Bloomberg.

The Department of Health and Human Services report, released just two weeks before Election Day, was sure to provide fresh ammunition for Donald Trump and Republicans in down-ballot races to attack the law. And sure enough, desperate for a winning political issue in the final weeks of the presidential race, Trump didn’t disappoint.

“It’s over for Obama care,” Trump declared Monday night in Tampa, FL. Tuesday morning in Miami, he proclaimed, “Obamacare is just blowing up.” Not citing any sources or pertinent backup data, Trump nonetheless asserted that premium rates would go up “60, 70, 80%.”

Democrats, who have increasingly warned about the escalating costs of Obamacare coverage in some areas, have pushed for Republicans to give up on repeal and work on fixes to the law. Clearly however, Mr. Trump has other ideas.

Federal health officials also confirmed that roughly one in five people in the states that use HealthCare.gov must shop from only one insurer following decisions by several major national and regional insurers to pull back from the Obamacare marketplaces in 2017.

On average, exchange customers will have 30 plan options to choose from for 2017, down from 47 this year. To attract more people, the government has emphasized that subsidies are available for many people to help cushion the premium increases.

About 77% of current enrollees would still be able to find ACA plans for less than $100 a month, once subsidies are taken into account, according to the report. Subsidies are calculated based on the cost of the second-lowest-premium silver plan in a given area. Silver plans typically cover about 70% of an individual’s medical expenses, though additional subsidies can help make the coverage more generous for lower-income individuals.

HHS officials said their outreach and advertising will emphasize that most exchange customers won’t pay the massive premium increases featured in headlines this year, says Politico. The enrollment period begins Nov. 1 and lasts three months.

“Even in places of high rate increases this year, consumers will be protected,” Kathryn Martin, assistant secretary for planning and evaluation at the health department, said on a conference call with reporters.

Her message to consumers is to check if they are entitled to subsidies and shop for options:

“The odds are good you’ll find plans more affordable than what the public debate about the ACA might lead you to expect,” said Martin.

Even those who weren’t eligible for tax credits in the past should apply again, because they may qualify now that many rates are much higher, said HHS spokesman Kevin Griffis.

Changes in the cost of the benchmark silver plans varied widely among regions, and the median benchmark premium increase was 16%. Premiums actually declined about 3% in Indiana, to $229 a month. In Arizona, on the other hand, the benchmark premium more than doubled, from $196 a month to $422, the report shows.

Because the law’s subsidies are tied to the cost of the benchmark plan, bigger premium increases mean the government will spend more to help lower costs for subsidy-eligible customers.

HHS says 15 new insurers will enter the exchanges in 2017, while 83 insurers are dropping off the marketplaces. About 80% of customers will have at least two companies to choose from; just more than half will have at least three.

The data released Monday confirm reports based on state regulatory filings that have been accumulating for months, showing much higher premiums for 2017. ACASignups.net, which tracks the health law, had also estimated a 25% rise in premiums on average, weighted by membership.

The government data show that some people may be able to find lower-cost plans by switching from their current coverage. The US said that if all people who currently have ACA plans switched into the cheapest option of the same “metal” level, they could cut their premiums by 20%.

Steve’s Take: On a slower-than-usual news day, the big healthcare headline was the government’s report that premiums for a crucial category of Obamacare plans on Healthcare.gov will rise by 25% on average next year, more than three times larger than this year’s price increases, the administration said.

Although bound to be viewed by Obamacare critics as another nail in the coffin of the program, instead it was great news in that federal and state insurance regulators are allowing companies to raise their premiums to a level needed for them to participate in the exchanges–an obvious requirement.

But, swept under the carpet, especially by Obama critics, is the determination of the government to provide whatever necessary subsidies there might be to the crucial “health fees” to purchase insurance that with the subsidies, they can actually afford–regardless of the increase in premiums.

Almost from its inception, critics have claimed that Obamacare inevitably would face a “death spiral,” wherein price increases would chase away the healthiest Americans, driving prices ever higher. But because the government will in effect absorb the extra cost for those it gives subsidies, such a scenario seems unlikely.

Price hikes are problematic because shoppers might need to swap plans they simply cannot afford, possibly interrupting their necessary treatment. But the government subsidies should buttress the other plans so that remaining on the exchange makes sense for them.

Without subsidies, however, it’s not the same situation for plans purchased directly from insurers. These are getting harder to afford. The mechanism for keeping healthy people in these plans supposedly is the fines they would have to pay if they went “bare.”

Right now, the fine for a single adult is $695 or 2.5% of gross income, whichever is higher–up to a ceiling. But that might not be disincentive enough, since plans with big annual deductibles can cost $2,000-$3,000.

Still, the announced exit of several of the leading insurers from next year’s exchanges poses the biggest threat to Obamacare. To put this in perspective, this year, one in 50 prospective exchange shoppers lived in a county with just one insurer, says McKinsey.

But due to the desertion by the insurers, next year up to one in six will be in such position. According to The Economist, some entire states will be served by only one insurer; and in Arizona, Pinal County is facing an exchange without any insurers.

Quite clearly, if the exchanges included more customers–especially healthy people–the ACA would function in a manner much more like it was originally intended. Getting more Americans to shift from employer-sponsored health insurance would be the best way to accomplish that goal.

If that were to happen, however, it would mean more people shopping on the exchanges. Theoretically, the government could force people with individually purchased plans to buy them on the exchanges, as is the case in Washington DC. That might stem the flight of insurers from the exchanges where they could still market directly to the more affluent shoppers.

Because most Republicans contemplate the ACA’s death spiral, well-intentioned ideas put forth to remedy the economic shortcomings are not politically viable. Democrats, on the one hand, espouse a publicly run plan that competes with other insurers–which Republicans abhor. Donald Trump on the other hand, calls The Affordable Care Act an “incredible economic burden,” to be replaced, under his presidency, with “something much better.”

The private market is desperately in need of cost-controls. Private health-insurance spending (including employer-provided plans) is forecast to grow by 5.6% a year over the next decade, driven by pharmaceutical spending, according to The Economist. Overall spending on health care will rocket to an eye-popping 20.1% of the American Gross Domestic Product by 2025.

Almost everyone on both sides of the aisle acknowledges that the key to making the ACA market work is to broaden the customer base by attracting more low-risk customers. But some of us question whether the insurers themselves have taken sufficient steps to bring them into the pool.

Steve's Take: Insurers deserve some of the blame for the increase in #Obamacare premiums Click To Tweet

For-profit insurers are second-to-none when it comes to marketing prowess. So where are their adds aimed at the “young and invincible,” as Deep Banerjee, an analyst at S&P Global Ratings, terms them? Invisible in every single marketing medium as far as I can tell. To some of us, the insurers have taken to their foxholes and, to a real extent, definitely shoulder some of the blame for an unbalanced risk pool.