END OF 2018 OPEN ENROLLMENT PERIOD (Connecticut & Maryland)

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Yes, I saw Robert Pear's NY Times piece re. 2016 Rate Requests.

I've had no fewer than a dozen different people call my attention to a story in the New York Times last Friday by Robert Pear which lays out the dramatic 2016 rate increase requests from various insurance companies across multiple states:

Health insurance companies around the country are seeking rate increases of 20 percent to 40 percent or more, saying their new customers under the Affordable Care Act turned out to be sicker than expected. Federal officials say they are determined to see that the requests are scaled back.

Blue Cross and Blue Shield plans — market leaders in many states — are seeking rate increases that average 23 percent in Illinois, 25 percent in North Carolina, 31 percent in Oklahoma, 36 percent in Tennessee and 54 percent in Minnesota, according to documents posted online by the federal government and state insurance commissioners and interviews with insurance executives.

The article goes into quite a bit of detail, citing particular states, companies and rate requests, and he makes sure to note some important caveats: These are only requested rates in most states (Oregon is the only one I know of which has already approved final rates); not every company is seeking double-digit increases and so on. However, it definitely paints a grim picture overall.

The Oregon insurance commissioner, Laura N. Cali, has just approved 2016 rate increases for companies that cover more than 220,000 people. Moda Health Plan, which has the largest enrollment in the state, received a 25 percent increase, and the second-largest plan, LifeWise, received a 33 percent increase.

He also makes sure to mention the recent KFF study which showed fairly minor rate increases across 11 large cities. The key point, however, is that (and I've stressed this many, many times before) people will have to shop around in order for this to occur.

A study of 11 cities in different states by the Kaiser Family Foundation found that consumers would see relatively modest increases in premiums if they were willing to switch plans. But if they switch plans, consumers would have no guarantee that they can keep their doctors. And to get low premiums, they sometimes need to accept a more limited choice of doctors and hospitals.

That's one of the main keys to the whole issue. As I've noted repeatedly, last year around 30% of enrollees from 2014 shopped around for 2015 (some stuck with the same plan anyway, like my wife and I, while others did indeed switch to a different plan, either from the same company or a competitor. As Richard Mayhew noted:

Secondly, and more importantly, we have to model some type of plan switching behavior as people aggressively switched plans in 2015 in response to absolute and relative price changes. Over 30% of renewals in 2015 were active renewals and a third of those renewals were plan switches. A large proportion of the switches in 2015 went from higher cost plans to lower cost plans. I think that this dynamic will be a constant in the ACA as pricing is transparent, on exchange buyers tend to be extremely cost aware as they tend to have less money than the average American with group sponsored coverage, and the products can be reasonably compared.

An example of this can be seen in Oregon where, as I noted just last week, final approval by the state has been given to state-wide average 24.2% rate increases...yet depending on your situation, you might be able to lower your premiums by 4% or more, if you're willing to shop around and switch to a different policy (even at the same metal level):

The silver lining here (pun intended) is that, as noted in the Oregonian article, even with these hikes, the rates are still pretty much in line with other states, and shopping around could result in a decrease for some people. For instance, using the 40-year old Portland example above, someone enrolled in a Silver plan via PacificSource (currently paying $284/month this year and looking at a 37% hike to $389/month) could switch to a Kaiser plan and only pay $271/month...a decrease of 4.5%, or $13/month!

Of course, that also depends on the different networks, deductibles, co-pays and so on between the two, but that's why it's vitally important that everyone shop around instead of blindly autorenewing. I cannot stress that enough.

The first paragraph above also brings up another important point which I've stressed before: Looking at the percent increase can be misleading in some cases. The Times article mentions a 50% spike in New Mexico, which definitely sounds bad...except that if the policy was seriously underpriced in the first place ($200/month when $330/month would've been more realistic), raising it to $300 would indeed mean a "50% increase"...yet still be priced competitively with similar policies.

Lemme put it this way: Let's suppose that Apple priced a new iPad at a mere $100, then realized their mistake the following year and raised it to $200. That would be a 100% increase, but would still cost 60% less than the $499 price they've traditionally priced new iPads at.

A more realistic example might be if they priced it at $400 and then raised it to $500. That would also be a $100 increase...but only 25%.more relative to the original price. This would also mean simply bringing it in line with their traditional pricing

Don't get me wrong; someone in NM paying that $200/mo would still be pretty cranky about being bumped up $100/mo. The point is that a scary-sounding percentage increase has to be kept in context, that's all: The lower the original price, the larger percentage increase any dollar increase will seem like in comparison.

Other important factors are brought up in the NY Times article, such as pent-up demand:

By contrast, Marinan R. Williams, chief executive of the Scott & White Health Plan in Texas, which is seeking a 32 percent rate increase, said the requests showed that “there was a real need for the Affordable Care Act.”

“People are getting services they needed for a very long time,” Ms. Williams said. “There was a pent-up demand. Over the next three years, I hope, rates will start to stabilize.”

Well, yes. Millions of people who had never been able to afford to visit a doctor--in some cases for many years--are suddenly able to do so. Many have ailments, diseases, injuries etc. which have gone untreated for a long time and which need a lot of care. This situation should drop off over the next couple of years, but yes, there are many expensive medical treatments which are desperately needed by millions of people at the moment; that was one of the points of the law.

Does this kind of suck from a financial POV? Of course. Is it a good thing that they're finally being treated from a moral/ethical/human decency POV? Absolutely.

This also brings up the point that for nearly 1/2 of the individual market (around 8.6 million out of around 18-20 million total), the federal tax credits (which were just saved by the Supreme Court for most states) should make the bulk of these increases a non-factor (or at least a nominal one).

Sylvia Mathews Burwell, the secretary of health and human services, said that federal subsidies would soften the impact of any rate increases. Of the 10.2 million people who obtained coverage through federal and state marketplaces this year, 85 percent receive subsidies in the form of tax credits to help pay premiums.

Admittedly, that doesn't do much good for the other 10 million or so enrolled in the individual market, who have to face the full rate increases...which is why, once again, it's so vital to shop around before blindly autorenewing.

Finally, there's another factor partially responsible for some of the rate hikes which was, quite frankly, brought upon the Obama administration by itself: The kneejerk "transitional plan" policy announced in November 2013 in response to the "If you like your plan you can keep it" brouhaha:

In their submissions to federal and state regulators, insurers cite several reasons for big rate increases. These include the needs of consumers, some of whom were previously uninsured; the high cost of specialty drugs; and a policy adopted by the Obama administration in late 2013 that allowed some people to keep insurance that did not meet new federal standards.

(sigh) Everyone should remember this, but just to recap:

  • In 2013, there were perhaps 5-6 million people enrolled in individual policies which they had enrolled in after March 2010, but which weren't compliant with ACA requirements.
  • Because those folks had enrolled in those policies after March 2010, the policies were originally set to be discontinued as of 12/31/13.
  • Millions of people (including myself) received notices from their insurance company in October 2013 letting them know that hey, your current policy is being discontinued on New Year's Eve, but you can easily replace it with a new policy which is ACA compliant.
  • Even though the insurance companies had known about the upcoming regulation changes for over 3 years prior to this, people still freaked out about it because President Obama had given his "If you like your plan you can keep it" statement. As I've noted before, this was a pretty foolish thing to promise without including any caveats, for reasons which actually had nothing to do with the ACA specifically.
  • Regardless, the backlash was severe, so in response, in November President Obama and the HHS Dept. announced that they would allow individual states the option of letting their insurance companies extend non-compliant, post-March-2010 policies by up to 1 year (later extended out to 3 years). These were called "transitional" or "grandmothered" plans.
  • 16 states (+DC) didn't allow "transitional" plans at all. The other 34 allowed them...but it was still up to the individual insurance companies to decide whether to offer "transitional plans" or not. Some companies did, some didn't, depending on what they felt was the best strategy at the time. Some extended them for 1 year, some for 2 and some for 3.
  • As a result, instead of the Band-Aid being "ripped off all at once", so to speak, it's being spread out over a 3-year period in most states.

This policy helped mitigate the backlash for many people, and gave them extra time to shop around for a different policy, which is good.

HOWEVER, it also caused a different problem which is now starting to show up.

The thing is, when the insurance companies set their original 2014 rates back in the summer of 2013, they did so on the assumption that those policies would be discontinued as of 12/31/13. The 2014 rates were already locked in (and in fact, the 2014 open enrollment period had already started) by the time the "transitional policy" announcement was made.

So, let's say you're in a state which allowed the extension. Let's say you're an insurance company which, when you set your 2014 rates, was expecting, say, 300,000 people on non-compliant policies (a different risk pool) to be shopping around for new coverage, and you set your compliant policy rates in anticipation of that. You only have, say, 20,000 of these folks; the other 280K are currently customers of your competitors, and you're hoping to snap up a chunk of them.

Suddenly the insurance commissioner announces that you and your competitors can keep offering those policies for another year or so. Now you have an actuarial problem...because suddenly, those 280,000 potential new customers you were counting on are very likely to stay right where they are for another year. Your risk pool projections are all screwed up, but you're stuck with them for at least one year.

This problem might not have shown itself fully this year, because the insurance companies had to set 2015 rates only halfway through 2014. A good 40% of the 2014 enrollees didn't even start their policies until April or May, meaning in many cases the insurance companies only had a few months of data to work with in setting 2015 rates; it was still guesswork to some degree just as it was in 2014.

For 2016, however, they have a full years' worth of data to work with...and in some cases, the combination of a) a mountain of pent-up medical care demand and b) the "transitional policy" extension in many states is starting to show up...in the form of higher-than-expected rate hikes.

To sum up: As far as I can tell, yes, the overall average rate increases next year probably will be higher than they were last year...but again, this will vary widely from state to state, company to company, plan to plan and so on. Case in point:

  • Oregon: Overall average rate increase: (weighted & approved): 24.2%
  • Maryland: Overall average rate increase (semi-weighted, not approved): 22.5%
  • Washington State: Overall average rate increase (semi-weighted, not approved): 5.4%
  • Connecticut: Overall average rate increase (weighted, not approved): 7.7%
  • Michigan: Overall average rate increase (weighted, not approved): 9.8%
  • Vermont: Overall average rate increase (weighted, not approved): 7.8%
  • Colorado: Weighted avg. rate increase of companies representing 75% of exchange enrollment: 9.3%

Note that of the 7 states listed above, 4 of them (MD, WA, CT, VT) did not allow transitional plans; the other three (OR, MI, CO) did. Yet 5 of the 7 are looking at weighted average increases of less than 10%. The point is that the rate increases (or in some cases, decreases) will be all over the map due to a variety of factors.

As always, for the moment, don't freak out over the requested rates. Wait until they're approved and finalized, and then make certain to shop around. You may be facing a large rate hike, you may see a nominal one, or you may even be able to cut your rates by making a switch to a different company.

In fact, Rebecca Stob, an actuary in Washington State who wrote a guest entry for me recently, summarized the situation nicely with just a few Tweets:

@jignrig @charles_gaba @xpostfactoid1 article is not new info - insurers underpriced for 2014/transitional plans = bad policy

— rebeccastob (@rebeccastob) July 4, 2015

@jignrig @charles_gaba @xpostfactoid1 individual market consumers need to shop around and accept less choice of providers

— rebeccastob (@rebeccastob) July 4, 2015