July 28, 2014:
It’s unlikely that state health insurance exchange officials will deliver a rate shock later this week when they announce premiums for 2015 plans sold by Covered California.
Several factors, including recent comments from some of the state’s largest insurers, suggest there will be only modest increases on those policies offered under the Affordable Care Act, or Obamacare. In some cases, there may be no hikes at all.
The state-run insurance exchange is scheduled Thursday to unveil rates and other details of the private sector insurance policies it will market to individuals and families for coverage that begins on Jan. 1. Enrollment for 2015 plans will open Nov. 15 and run through Feb. 15.
In addition to new enrollments, Covered California will also need to renew coverage for many of the 1.4 million state residents who signed up for 2014. People who want to renew existing policies will be able to do so starting in October.
Health care analysts said insurance companies probably relied on guesswork in setting premiums for next year since they still do not have a complete picture of how their spending on medical care has been affected by this year’s influx of hundreds of thousands of newly insured Californians – some with longstanding conditions for which they could not get adequate care before.
Because assumptions, computer modeling and business strategies will differ from insurer to insurer, there is likely to be a lot of variation in the magnitude – and possibly the direction – of premium changes for next year, they say.
But there are reasons to believe that, on average, there won’t be anything close to the kind of double-digit increases that have been so common for health insurers in recent decades. And the consumer impact of any increases will be mitigated by the vast majority of exchange enrollees receiving federal subsidies to help keep premiums at a fixed percentage of their income.
“I would expect increases in California to be on the modest end of the spectrum,” said Larry Levitt, a senior vice president at the Kaiser Family Foundation, a nonprofit health care research group based in Menlo Park.
He noted that following the political uproar last year over the cancelation of health policies that did not comply with the new coverage requirements of the Affordable Care Act, some states allowed people to stay on their old, noncompliant plans, which tended to attract younger, healthier people. That meant healthy people were “siphoned” out of the exchanges in those states, leaving them with a sicker population, which would tend to push premiums up.
But that did not happen in California because the state didn’t allow the old plans to remain in force.
Also favoring premium moderation in California, Levitt argued, is the robust 2014 enrollment number, which was double Covered California’s most optimistic forecast. In states with low enrollment, the people who did sign up were likely to be “sicker than average,” he said.
“In California, the enrollment has been strong, so the risk pool is likely to include healthy people as well as sick,” Levitt said.
Blue Shield of California embraced this argument, offering a possible clue to its 2015 premiums. The insurer, one of the state’s largest, “was pleased with the larger-than-expected enrollment numbers, signaling strong enrollment by healthy individuals,” said company spokeswoman Mia Campitelli.
Anthem Blue Cross, which drew the largest number of Covered California enrollees statewide this year, seems similarly pleased with its demographic mix. In a speech last month in Los Angeles, Anthem president Mark Morgan revealed that the average age of Blue Cross enrollees in Covered California was 41 years old, “within a year of what we expected. So our team got it right in terms of setting that pricing based on age.”
That suggests Anthem Blue Cross may not need to make any dramatic adjustment to its rates for next year.
“We will not have double-digit increases in our Covered California population,” Morgan said. “So stay tuned, but I think that’s a good indication of how we feel about the success of our early work, because there are other parts of the country where we’re hearing 20s and higher.”
Indeed, in states that have already reported their 2015 exchange premiums, some insurers have proposed rate hikes well in excess of 20 percent. But others, often within the same states, are reducing their premiums.
In Oregon, for example, the biggest premium hike is 28 percent, while the lowest is actually a decrease of 21 percent, according to data compiled by Families USA, a Washington, D.C.-based health care consumer advocacy group.
It appears that Kaiser Permanente, which charged the highest prices of any plan in Covered California this year, is aiming for moderation in its 2015 premiums. According to Families USA, Kaiser is cutting premiums 12.1 percent in Maryland and is proposing an increase of just 3.3 percent in Virginia — the lowest of any insurer in that state.
“We are optimistic that consumers will see at most only very modest increases, if any, next year,” said John Nelson, Kaiser Permanente’s Southern California spokesman.
Some health care observers think Kaiser may be unhappy about the dampening effect its high prices had on its enrollment numbers in Covered California in 2014. Though it is an undisputed giant in the state, with more than nine million Californians enrolled, Kaiser had fewer sign-ups in the exchange than Anthem Blue Cross, Blue Shield and even Health Net, which previously was a small player in the individual market.
For a family of four with parents 40 years old, Health Net’s HMO at the silver tier – the second cheapest type of plan – costs $762 a month, compared to Kaiser’s $1,003. Health Net was able to cut prices largely because of its stripped-down network, while Kaiser offers its full network to everyone.
“Kaiser may be regretting how they did things last time around, and they may come in lower,” said Betsy Imholz, director of special projects at Consumers Union.
If Health Net has any desire to raise prices, it will likely be tempered by an instinct to protect the considerable new market share that its low premiums delivered. Asked what lessons Health Net has drawn from its first year in Covered California, company spokesman Brad Kieffer replied: “Price is king. Our Communitycare HMO – the lowest priced plan in Southern California – sold like hotcakes.”
With the Affordable Care Act driving millions of newly insured people into exchanges, the individual insurance market has suddenly become a much more important – and competitive – business.
Insurers will want to retain their new enrollees at least for a few years, to help pay off the millions of dollars they spent upgrading their systems for the Affordable Care Act, said Ron Goldstein, CEO of CaliforniaChoice, a private health insurance exchange for small businesses based in Orange.
“One of the insurance companies we work with says they got a couple hundred thousand new individual members. That doesn’t pay for all the upgrades they made in year one,” Goldstein said. “The strategy is to keep them for a few years. So it would not make sense to increase premiums very much.”