Health Insurance Crisis

At first glance, premium increases among health plan issuers set to participate in California’s health benefit exchange individual marketplace in 2014 are not coming in nearly as high as forecast in an actuarial study issued in March.  The Milliman study commissioned by the exchange, Covered California, projected that market changes due to Patient Protection and Affordable Care Act requirements would increase 2014 premiums by 14 percent on average.  Consumers buying richer coverage due to the Affordable Care Act’s essential health benefits requirement would add 4.8 percent and higher average actuarial value for existing covered services another 11.5 percent.

Instead of a total increase of more than 30 percent based on these numbers, average 2014 premium rates for one of the large participating plan issuers, Blue Shield of California, will rise 13 percent for plan year 2014.  While still in the double digits, it’s not that much above the underlying annual nine percent rate increase “trend” driven by increases in provider reimbursement, increases in utilization due to new procedures and technology and higher prescription utilization and costs per the Milliman projection.

Several factors are likely keeping rate increases lower than expected in California, whose exchange marketplace is being closely watched as a harbinger of where individual health insurance rates may be headed next year in other state exchange markets.

• Rates are for 2014 only under the one year term of the contract between Covered California and participating plan issuers.  That gives the 13 plan issuers initially participating in the marketplace time to determine if their rates are adequate and to assess initial enrollment numbers.
• Covered California is one of a handful of state exchanges using an “active purchaser” model in which it negotiates terms and conditions for participation in its exchange marketplace, the largest in the nation with potentially more than an estimated 2 million enrollees signing up for individual plans in 2014.  That provides the exchange with a degree of bargaining power with participating plan issuers, who in turn responded by narrowing their provider networks in order to hold down costs.
• Increased plan issuer confidence in the Affordable Care Act’s reinsurance and risk adjustment provisions designed to mitigate high claims costs from sicker individuals using more costly medical services.
• Last but not least, politics.  Had rates for exchange plans come in as high as actuarially predicted, taxpayers would have had to absorb a larger amount of the premium increases for those earning 400 percent or less or federal poverty guidelines in the form of premium subsidies.  Those earning more than 400 percent of poverty would have experienced substantial “rate shock” since they are ineligible for the subsidies — advance personal income tax credits to offset premiums for coverage purchased through state exchanges — creating pressure for more regulatory reforms.  A measure that will appear on the November 2014 ballot — after the 2014 rates will have been in effect for more than 10 months — will ask California voters if health insurance rates should be subject to prior regulator approval.