More Fun With Numbers (or, why you should take those 2015 rate reports with a BIG grain of salt)
NOTE: I originally posted this as an update to my Florida rate increase entry this morning, but it's important enough that I figured I should repost it as a separate entry.
Thanks to Caitlin Sweany of PricewaterhouseCoopers for explaining an interesting discrepancy I noted in at least one state (my own state of Michigan). This is another example of how difficult it is to nail down the actual impact of these rate changes (and remember, in many cases these are still just requests, not approved rates, subject to change). Case in point:
According to the Detroit Free Press's original story on the subject, Michigan's "average" premium rates are only going up 0.8%. Yayyyy!!!
However, ACA supporter though I may be, I had to pour some cold water on this claim by pointing out that when you do a weighted average (ie, taking into account the fact that BCBSM and Blue Care Network combined make up 74% of the total enrollments), it's actually more like a 9.4% increase. Not awful, but a lot worse than the Free Press made it sound like. Boooooo!!
However, Ms. Sweany explained that when PwC does their analysis, they take it one step further, taking into account the different metal level plans...and put the "true" average increase pretty much in the middle, at around 4.6%. Yayyyy!!!
You see, just as not every insurance company will have the same total enrollment, the same is true with the different plans within each company.
Let's say that a given company had plans priced at $400 (Platinum), $300 (Gold), $200 (Silver) and $100 (Bronze), averaging $250.
They ask for a 15% increase on Platinum ($460), 10% increase on Gold ($360), no change to Silver ($200) and a 10% decrease for Bronze ($90).
Add these up and you get an unweighted average of $277.50, or an 11% increase.
However, again, just like with weighting the companies, you have to account for how many people enroll in each plan. If 90% of the customers are enrolled in the Silver plan, then the overall rate change will be almost zilch in this scenario...assuming that most of them stick with the same plan, that is. It's even conceivable that there will be an overall drop in the 2015 rates in this scenario, if enough people stick with the Silver and Bronze plans.