The Incredible Shrinking Rate Hike Revisited (2016 Edition)!

Hey, remember this??

Some Guy, May 19, 2015:

Letting the air out of rate-increase hysteria

The 2016 rate-increase hysteria has already started. Before you freak out, here are four things to remember about premium-hike proposals.

May 15 officially marked the start of the 2016 rate review season. What that means for Americans is that over the next month or so, newspapers and web sites across the country will start running stories with scary-sounding headlines like this:

Some Oregonians could face major insurance rate hikes next year

Health plans request double-digit premium increases

...The articles will throw a bunch of numbers around, saying that the “average” premium rate increase for a given state is expected to be X percent, followed by examples of the highest and lowest increases. There may even be a few “Company Y will actually be reducing their rates!” thrown in.

...The point of all this is that when you see a shockingly high 2016 rate hike splashed across a headline, take it with a huge grain of salt. It may be accurate, or it may turn out to be much ado about very little.

Some Guy, May 22, 2015:

...In other words, once again: Some policies from some companies in some states will have shock-inducing increases...while others will be reasonable, and others yet may even drop. Keep all 5 of the points above in mind when reading this sort of story (along with numerous other factors like deductibles, co-pays, cost sharing reduction and so on), and above all, don't panic.

Some Guy, June 4, 2015:

Over the past couple of weeks, I've posted a bunch of entries both here and over at about not freaking out when you see "OMG!!! MASSIVE OBAMACARE RATE HIKES NEXT YEAR WE'RE ALL GONNA DIIIIIIIIE!!!"-style headlines such as this giant one from CNN Money:

Many are proposing double-digit premium increases for individual policies, with some companies looking to boost rates more than 60%, according to a list posted Monday by the federal Centers for Medicare & Medicaid Services.

In Florida, for instance, United Healthcare (UNH) wants to raise the rates of plans sold on the Obamacare exchange by an average of 18%. Individual policies available outside the exchange through United Healthcare or through a broker would go up by 31%, on average, with hikes as high as 60% for certain plans in certain locations.

In Texas, insurer Scott & White is looking for a 32% increase for exchange-based plans, while Humana (HUM) is asking for an average 30% boost for its exclusive provider organization policies, which generally cover only in-network services.

...My point here isn't to attack anyone; again, the fact that some companies are asking for large increases is a legitimate story. Rather, my point is to again emphasize the importance of reading past the scary headlines andthinking about what factors might be missing in the story before freaking out.

Some, possibly many, rates will be through the roof next year...but others will be pretty reasonable or even reduced from this year.

That's why it's so vitally important that people shop around instead of blindly autorenewing with their current plan.

Some Guy, October 29, 2015:

FINAL PROJECTION: 2016 Weighted Avg. Rate Increases: 12-13% nationally*

*IMPORTANT: This assumes that everyone currently enrolled sticks with their current policy next year. If enough people shop around and consider their options, the average premiums for various plans, various companies, in vartious states and nationally could end up being considerably lower (possibly coming in under 10% overall).

Avalere Health, November 3, 2015:

Avalere Analysis: 2016 Exchange Premiums

...As shown in Figure 1, the average lowest silver plan in states with a federal exchange increased by 13.0 percent from 2015 to 2016, compared to 3.2 percent from 2014 to 2015.

2016 Exchange Premiums: Changes in 2016 premiums vary widely by geography and regional market dynamics. When considering premium impact, note that over two-thirds of exchange consumers picked silver plans in 2015. Exchange plan enrollment is often concentrated in the lower priced plans in a particular metal level. As such, changes in the lowest priced plans in markets will have a larger impact on the average exchange consumer than the average premium for the entire market.

McKinsey Center, November 12, 2015:

According to the McKinsey Center report, the nationwide weighted average increase is 11.7%, slightly below my 12-13% estimate. Unlike the Avalere Health report, the McKinsey study appears to be more of a true apples-to-apples comparison.

Robert Wood Johnson Foundation, December 16, 2015:

HIX Compare datasets examine every marketplace plan from 2015 to 2016.

This is the only nationally comprehensive, public dataset that includes information on all plans offered in the health insurance marketplaces.

  • Bronze: 22.9% x 12.6% = 0.0266112
  • Silver: 69.8% x 11.3% = 0.078874
  • Gold: 7.3% x 13.8% = 0.010074
  • Total: 0.1155592 = 11.6%

HHS Dept. Mid-Enrollment Period Report, January 22, 2016:

The average ObamaCare premium rose to $408 per month for 2016 plans, about a 9 percent increase from this time last year, according to a new report from the Department of Health and Human Services.

However, 83 percent of ObamaCare enrollees pay far less than $408 because they get tax credits under the healthcare law. The average tax credit for 2016 is $294, meaning that the average share of the premiums that enrollees have to pay is $113. That is up $8 from the $105 people paid on average last year.

The size of the financial assistance from the government in turn increased as the overall premium level rose. The average tax credit increased from $268 to $294 per month.

As Republicans highlighted, premium increases for certain plans in some states were far higher, as much as 40 percent. But the report released Thursday shows that on average premium increases were less than that, and tax credits helped reduce the burden even more.

Some Guy, Same Blog Post, January 22, 2016:

BOOM: EFFECTIVE avg. 2016 ACA exchange rate hikes: ~9% nationally

Even better: As noted in the article, this report only includes the 38 states covered by, and only covers enrollees thorugh 12/26/15...The overall average could move up or down a bit by the time the dust settles.

For instance, California's average rate hikes should only end up being around 4%. Since CA has enrolled nearly 1.5 million people, that would knock the overall average down to just 8.3% across around 71% of the total. Adding in the other dozen states, as well as the post-December enrollees, could move the needle up or down a few more tenths of a percent (my estimates for 8 of the remaining states (CO, CT, DC, MA, NY, RI, VT & WA) all average well below 10%, while the other 4 (ID, KY, MD & MN) came in at double digits.)

All of which brings me to today:

Marketplace Premiums Last Year Much Lower Than Initial Rates Suggested

A new report debunks the myth that average consumers experienced double digit percentage premium increases for coverage on the Marketplace in 2016.

Over the next few months, insurers will file preliminary individual market rates with their states’ insurance regulators. Marketplace consumers would do well to put little stock in those initial numbers. A new report by the Department of Health and Human Services debunks the myth—based on last year’s rate filings—that average consumers experienced double digit percentage premium increases for coverage on the Health Insurance Marketplace in 2016. According to the report, averages based on proposed premium changes are not a reliable indicator of what typical consumers will actually pay because tax credits reduce the cost of coverage for the vast majority of people, shopping gives all consumers a chance to find the best deal, and public rate review can bring down proposed increases.

Today’s report found that, last year, the average cost of Marketplace coverage for people getting tax credits went from $102 to $106 per month, a 4% change, despite suggestions of “double-digit price hikes.”

Now, I do have to stop right there for a minute: The "for people getting tax credits" caveat is a very important one, because that only applies to around 9.1 million people (ie, the 83% or so of ACA exchange enrollees who are receiving APTC assistance). This does not include the other 1.9 million or so exchange enrollees who are paying full price, nor does it include roughly 6 million OFF-exchange enrollees who are also paying full price for their ACA-compliant individual policies.

HOWEVER, even when you take that into account...

Rate Changes without Shopping or Tax Credits

The Marketplace is a dynamic environment. New consumers sign up during Open Enrollment, while returning consumers can explore their health coverage options and either remain with their plan or select a different plan. In addition, enrollees have the flexibility to come and go as their life circumstances change. For example, consumers may move to a new source of coverage because of a job with employer-sponsored insurance or may become eligible for Medicaid or Medicare. In addition, the vast majority of Marketplace consumers also qualify for tax credits that dramatically reduce their premiums.

By contrast, the average premium changes reported in insurers’ rate announcements assume a scenario in which no consumer leaves the Marketplace, no new consumers enroll, nobody switches plans, no new plans are offered, and no one receives tax credits. That means that the average rate changes reported in issuer filings do not accurately represent the changes in the premiums consumers will actually pay. Using rate filing information alone, some observers last year suggested that consumers would see double-digit percentage increases in the premiums they paid in 2016. For example, a McKinsey analysis based on rate filings estimated that median premiums would rise by an average of 10 to 15 percent in 2016.

...During the Marketplaces’ annual Open Enrollment Period, new consumers select plans and current consumers have the option to switch plans. Overall, 6.4 million individuals (67 percent) of consumers selected a new plan for 2016: 4.0 million new consumers, plus 2.4 million (43 percent) of returning consumers. After taking into account shopping, the average premium among all consumers increased 8 percent from 2015 to 2016 (Table 1), not much higher than the 7.2 percent increase in the second-lowest silver plan premium reported at the start of the 2016 open enrollment. The 8 percent increase in the average premium after shopping demonstrates that enrollees’ actual premiums depend on the dynamics of the entire market not just issuers’ pricing decisions.

In other words, full-price premiums increased by an average of around 8%.

Now, some important reminders/caveats are in order:

  • This only includes the 38 states operating on the federal exchange; the average increases (both full price as well as subsidized) may differ for the 12 states running their own exchanges (+DC). However, as I noted in January, Covered California's full-price rates only went up 4%, and they're by far the largest of the state exchanges. My guess is that when all 50 states +DC are included, the national average increase will turn out to be slightly lower than 8%.
  • This still doesn't include the 6 million or so OFF-exchange policies. It's possible that off-exchange enrollees didn't shop around as much as on-exchange people did...or perhaps they shopped around more. If so, I suppose this could skew that 8% full-price average up or down further to some degree. However, again, my guess is that it'll turn out to be a wash.

There's some other interesting data included in today's ASPE report, but the main point is exactly what I said in my post nearly a year ago:

When you see a shockingly high 2016 rate hike splashed across a headline, take it with a huge grain of salt.