Obamacare rate shocks are coming

Next year has already arrived for health insurers.

The Obama administration has asked that insurers submit their proposed premiums for 2015 within the next month – even as they attempt to collect payment from about 1 million of the 8 million people who signed up for coverage in the exchanges through mid-April.

Federal and state regulators may not like what insurers have in store. Thanks to Obamacare’s numerous mandates and a pool of older and sicker exchange enrollees that promises to be costly, health insurance could be far from affordable next year.

“I do think that it is likely premium rate shocks are coming,” said Chet Burrell, CEO of insurer CareFirst BlueCross BlueShield, last month.

In a conference call this week, Humana’s CEO said of potential premium increases for 2015, “We can see pricing levels anywhere in the single digits to the double digits.”

The Society of Actuaries predicts a 7 percent hike – and that’s considered good news. “I guess we’re being a little optimistic,” said Dave Axene, a fellow with the Society.

Obamcare’s requirement that all policies offer comprehensive benefits is partially to blame for these looming premium hikes. The law’s essential benefits’ mandates force men to pay for pregnancy coverage and childless adults to subsidize preventive dental treatment for kids without fluoride in their water.

In isolation, such mandated benefits may be inexpensive. But together, they ratchet up premiums substantially. Already, benefit mandates at the state level force premiums up by 10.5 percent on average, according to Pacific Research Institute Senior Fellow Benjamin Zycher.

Another reason for the price hikes? Obamacare’s requirement that insurers charge older folks no more than three times what they charge young people – even though the middle-aged and elderly consume more health care.

This “community rating” requirement may save some of the nation’s oldest and sickest patients money. But it does so by increasing premiums for many more young, healthy people.

Young adults are already reluctant to buy insurance because they don’t derive much value from it. A study published in the May issue of the Journal of Adolescent Health found that young adults aged 18-25 spent about the same amount of money out-of-pocket for health care, regardless of whether they had insurance.

And that study was based on 2009 data – before Obamacare became law. Higher premiums are bound to further discourage young people from getting coverage.

That’s exactly what’s happening. Insurers say that Obamacare initial enrollees “represent a higher rate of older and costlier members than hoped.” Of the roughly 8 million people that have signed up for health insurance through the exchanges, only 28 percent are between 18 and 34.

That’s far short of the Congressional Budget Office estimate that 40 percent needed to be young adults to keep the exchanges financially solvent.

Still, some insurers are trying to put a positive spin on Obamacare. After warning of “double digit” increases, WellPoint’s CEO recently said its exchange business was “sustainable.” And in recent congressional testimony, one insurance executive said, “Large percentages of our newly enrolled customers are successfully paying their premiums by the due date.”

But those “large percentages” amount to anywhere from 68 percent to 90 percent of enrollees. That translates to between 800,000 and more than 2 million people who haven’t paid their premiums – and may never do so.

All this uncertainty may prompt insurers to be cautious about how much they’ll have to spend on claims next year. And that caution means higher premiums.

“It is an actuarial nightmare to try to guess what you’re going to get,” Cliff Gold, chief operating officer of CoOportunity Health, a new nonprofit carrier in the Midwest created with Obamacare funding, told Kaiser Health News.

Amy Yao, Blue Shield’s chief actuary, notes, “I have the best actuarial team in the whole country. Even with that, it’s less than 50 percent confidence [of making accurate actuarial predictions].”

Then there’s the uncertainty about the law itself. On April 22, Aetna chief executive Mark Bertolini attributed about half his company’s pending premium increases to “changes that have been made on the fly” to Obamacare.

Looking ahead, the only thing that’s certain is that monthly premiums are going up. For that, Obamacare is to blame.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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