UPDATE: California: 13.2% avg. rates proposed for indy market...but with one major caveat

Back in early May, Covered California, the largest state-based ACA exchange in the country, issued their proposed 2016-2017 budget, which included this tidbit:

California’s health insurance exchange estimates that its Obamacare premiums may rise 8 percent on average next year, which would end two consecutive years of more modest 4 percent increases.

The projected rate increase in California, included in the exchange’s proposed annual budget, comes amid growing nationwide concern about insurers seeking double-digit premium hikes in the health law’s insurance marketplaces.

...Insurers in California have submitted initial rates for 2017, but the final figures won’t be known until July after state officials conduct private negotiations.

As I noted at the time, it's important to disginguish between the expected rate proposals, the actual rate proposals and the approved rate proposals. The May budget only included the expected rates, but since it's all I had to go with at the time, that's what I plugged into my 2017 Rate Hike Challenge spreadsheet: 8.0%.

Well, it turns out that 8% was a bit optimistic on the part of the CoveredCA officials, because they just relased the actual proposed rate changes:

Covered California Announces Rates and Plan Expansions for 2017

• Statewide weighted average increase is 13.2 percent
• Three-year average increase of 7 percent is lower than pre-Affordable Care Act trends
• Nearly 80 percent of consumers will pay less or see a rate bump of no more than 5 percent if they switch plans
• Insurers are expanding to compete in new communities
• New benefit changes help consumers save when they access health care

I've posted the rest of the press release below, and there's some important points included in it. They're obviously trying to put the best face on this news that they can, which makes sense, and there are some key mitigating factors to take note of. However, the fact remains that 13.2% is considerably more than 8%, and in the end, the national weighted average requested rate hike just got bumped up by 0.9 percentage points, from 21.8% to 22.7% as a result.

UPDATE W/CORRECTIONS: HOWEVER, there is one other important factor here: This average may only include exchange-based individual policies, not off-exchange. How big of a factor this could be, I have no idea; in 2014, California had 2.17 million people enrolled in individual policies statewide, but only 1.4 million of them were enrolled via CoveredCA, so there were around 800K enrolled directly via the carriers. . Since California did not allow "transitional" plans to continue past 12/31/13 on the individual market, that means some of those 800K were likely "grandfathered" enrollees, which aren't part of the ACA-compliant risk pool anyway, and that number has likely dwindled quite a bit further by now.

Nationally, the individual market has increased by about 25%; assuming CA is typical of the country as a whole, that means the CA indy market is up to around 2.7 million today. I've been informed by a reliable source that the actual off-exchange individual market stands at around 900K.

This year 1.575 million selected QHPs via the exchange, but only 1.42 million were still enrolled as of 3/31...which means the total indy market in the state is around 2.3 million today.

Some of those--possibly even most of them--are enrolled in the exact same policies that are available via the exchanges (ie, the same QHPs, just at full price directly via the carriers), which are already baked into the 13.2% equation. A small number are enrolled in grandfathered policies as noted above (in Florida, less than 5% of the indy market was GF enrollees over a year ago, while in South Dakota, over 30,000 are still enrolled in either GF or Transitional plans even today...but I don't know the ratio between those). I'm guessing CA's population is a lot closer to Florida's anyway, so my guess is that no more than perhaps 150K? (6.5%) of the 2.3 million are enrolled in GF plans at the moment. That leaves around 750,000 ACA-compliant off-exchange enrollees. 

IF the vast majority of those 750K are enrolled in "QHP mirror" plans off-exchange, then they're already baked into the 13.2% average, and the rest won't move the needle much at all.

If, however, a significant number (500K?) are enrolled in ACA-compliant non-QHPs, and if those plans are looking at hikes higher or lower than 13.2%, that could change things significantly.

For instance, let's say that 250K are baked in and 500K aren't...and that the 500K are looking at 20% average hikes. That would mean:

• (13.2% x 77% of the market (1.42M + 250K)) + (20% x 23% of the market) = 14.8%

However, if the 500K are only looking at 5% average hikes:

• (13.2% x 77% of the market (1.42M + 250K)) + (5% x 23% of the market) = 11.3%

Let's say that none of the 750K are enrolled in QHP mirrors. Then the numbers above would be:

• 13.2% x 65% of the market (1.42M) + (20% x 35% of the market) = 15.6%
• 13.2% x 65% of the market (1.42M) + (5% x 35% of the market) = 10.3%

In other words, without knowing how many Californians are enrolled in off-exchange, ACA-compliant NON-QHPs, CA's average remains a bit of a mystery.

Here's the rest of the press release:

SACRAMENTO, Calif. — Covered California unveiled its rates for 2017 on Tuesday and announced that some health insurance plans will be expanding into new areas throughout the state to compete for consumers in California.

The statewide weighted average change will be 13.2 percent, up from approximately four percent in each of the last two years. However, most consumers will see a much smaller increase — or pay less next year — if they switch to another plan.

“Shopping is going to be more important this year than ever before,” Covered California Executive Director Peter V. Lee said. “Almost 80 percent of our consumers will either be able to pay less than they are paying now, or see their rates go up by no more than 5 percent, if they shop and buy the lowest-cost plan at their same benefit level. That’s the power of shopping.”

They're pushing very hard on the "Shop Around!" theme, which makes total sense from a "retail marketplace" POV. That's the entire point of having competition on the market, after all. Of course, more people shopping around ("high churn") means issues with less continuity of care as people shift from one plan/carrier to another year to year, but that's the trade-off at play here.

Lee said the opportunities to shop and save show that California has succeeded in building a competitive marketplace for health insurance, with rate increases that are still below trends in the individual market before the Affordable Care Act was passed.

“This is a new era of health care, where the consumer is in the driver’s seat with the power to look easily for a better deal, and where subsidies help absorb the impact of rate changes,” Lee said. “These options did not exist before the Affordable Care Act.”

Some consumers who choose to keep their plan will see a significant increase in their premium for 2017, while others will see a more modest increase, depending on where they live and what insurance plan they have. Consumers will begin receiving notices in October, when they will have an opportunity to review their new rates and change plans for their 2017 health coverage.

They also remind people that the vast majority of CoveredCA enrollees (90%) receive APTC assistance, which in turn covers an average of 77% of their premiums, which means that a 13.2% "full price" rate hike doesn't really reflect the actual price change for most enrollees (although it absolutely does impact those paying full or near-full price):

For many of those insured, the bulk of the premium increase will be absorbed by the subsidy paid by the government to help enrollees buy health insurance. Approximately 90 percent of Covered California enrollees get help to pay for their premiums. The average subsidy covers roughly 77 percent of the consumer’s monthly premium, and while premiums will rise, the subsidies will rise as well.

“Even though the average rate increase is larger this year than the last two years, the three-year average increase is 7 percent — substantially better than rate trends before the Affordable Care Act was enacted,” Lee said.

Lee said the average rate increase reflects the cost of medical care for consumers, not excessive profit.

“Under the new rules of the Affordable Care Act, insurers face strict limits on the amount of profit they can make selling health insurance,” Lee said. “So, while all plans are experiencing different cost pressures, we can be confident their rate increases are directly linked to health care costs, not administration or profit, which averaged 1.5 percent across our contracted plans.”

For consumers who get a tax credit to lower their costs — which is about 90 percent of those who sign up through Covered California — the amount they pay is impacted not only by the premium choice, but by changes in their tax credit. While the average rate increase is higher than past years, Covered California’s risk mix — the ratio of consumers who are healthy vs. sick — remains one of the best in the nation according to the Centers for Medicare and Medicaid Services.

The list of reasons for the rate hikes are interesting as well:

Other reasons for rate increases include:

• A one-year adjustment due to the end of a funding mechanism in the Affordable Care Act known as reinsurance, which was designed to moderate rate increases during the first three years when exchanges were being established. The American Academy of Actuaries estimates this will add between 4 percent and 7 percent to premiums for 2017.

I'm assuming that this "4-7 percent" range refers to percentage points and is representative nationally. In other words, it sounds like they're saying that around 5.5 points of that 13.2% total is a one-time hike due specifically to the end of the reinsurance program. If so, that means that the non-reinsurance related portion makes up around 7.7 points. If this is the case nationally, it means that fully 1/4th of the 22.7% national requested rate hike average is a one-time adjustment due specifically to the end of the reinsurance program.

• Special enrollment by some consumers who may be enrolling in health insurance only after they become sick or need care, which seems to have had a significant impact on rates for two insurance plans.
• The rising cost of health care, especially specialty drugs.
• Pent-up demand for health care now being accessed by those who were locked out of the health care system before the Affordable Care Act was enacted.

I cannot stress enough how important this last point is. While pre-ACA premiums were getting ugly already, the main reason they weren't even uglier was that millions of people, many with expensive pre-existing conditions, were left out in the cold altogether. Once you allow those folks to jump into the risk pool, medical treatment costs are bound to shoot up...even more so because many of them have been suffering from their ailments for years or even decades before enrolling, which generally makes it even more expensive to treat.

There are plenty of things to criticize the ACA for, but you can't agree that pre-existing condition exclusions should be banished on the one hand while simultaneously complaining that the risk pool is getting more expensive on the other. If you're gonna merge the two groups into the same risk pool, that's what's gonna happen, period.

Unlike some states, CA seems to have few problems with a lack of competitive markets:

Lee said Covered California is working to address some of these issues on multiple fronts. The exchange is aggressively marketing to attract healthy consumers year-round, and it is working to ensure special enrollment is available only to those who meet qualifying circumstances. It is also sampling the special enrollment population to better understand how to make any further improvements needed.

“We work hard to build a robust exchange that drives competition by attracting as many consumers as possible,” Lee said. “Now, consistent with the vision of the Affordable Care Act, we will redouble our efforts to make sure our consumers and potential consumers understand the importance of signing up during open enrollment and remaining covered throughout the year.”

Lee said Covered California’s 11 health insurers are competing across the state for its 1.4 million members.

“The sheer number of enrollees and their overall health means consumers in the individual market are benefiting from competition,” Lee said.

Below is the complete list of the companies selected for the 2017 exchange:

• Anthem Blue Cross of California
• Blue Shield of California
• Chinese Community Health Plan
• Health Net
• Kaiser Permanente
• L.A. Care Health Plan
• Molina Healthcare
• Oscar Health Plan of California
• Sharp Health Plan
• Valley Health Plan
• Western Health Advantage

Rate details by pricing regions can be found in “Covered California’s Health Insurance Companies and Plan Rates for 2017,” posted online at:http://coveredca.com/news/pdfs/CoveredCA-2017-rate-booklet.pdf

The preliminary rates are subject to a 60-day public comment period and regulatory review by the California Department of Managed Health Care. In addition, the California Department of Insurance will review Health Net’s EPO.

Some insurance carriers will be increasing their coverage areas in 2017:

• Oscar will be entering the market in San Francisco, Santa Clara and San Mateo counties.
• Molina will expand into Orange County.
• Kaiser will be available in Santa Cruz County.

With the expansion of its current carriers, almost all consumers (92.6 percent) will be able to choose from three or more carriers, and all will have at least two to select from.

In addition, more than 93 percent of hospitals in California will be available through at least one Covered California health insurance company in 2017, and 74 percent will be available in three or more plans.

Also, while the rates may be going up, CoveredCA appears to be beefing up what's covered further, making them a better value:

Covered California also is improving its patient-centered benefit designs by increasing a consumer’s access to care by reducing the number of services that are subject to a consumer’s deductible.

Starting in 2017, consumers in Silver 70 plans will save as much as $55 on an urgent care visit and $10 on a primary care visit. In addition, consumers in Silver, Gold and Platinum plans will pay a flat copay for emergency room visits without having to satisfy a deductible, which could save them thousands of dollars.

These improvements build on features already in place that ensure most outpatient services in Silver, Gold and Platinum plans are not subject to a deductible, including primary care visits, specialist visits, lab tests, X-rays and imaging. In addition, some Enhanced Silver plans have little or no deductible and very low copays, such as $3 for an office visit. Even consumers in Covered California’s most affordable Bronze plans are allowed to see their doctor or a specialist three times before the visits are subject to the deductible.

In addition, the contract with health insurers for 2017 ensures consumers select or are provisionally assigned a primary care physician within 60 days of effectuation so they have an established source of care.

“Health care reform isn’t just about making insurance affordable, it’s about doing things to make it easier for consumers to get the right care at the right time,” Lee said.

In May, the Centers for Disease Control and Prevention announced that California’s uninsured rate had fallen to 8.1 percent at the end of 2015, down from 17 percent at the end of 2013, right before the Affordable Care Act began offering coverage.

“We can all be very proud of the extraordinary gains we have made in reducing California’s uninsured rate to a historic low,” Lee said.

UPDATE: I almost forgot; here's a direct link to CoveredCA's full 2017 proposed rate change report, which breaks the statewide data down into each of the 19 regions by metal level, carrier, average rate change and so on.