Obamacare plan customers should brace for sticker shock when the administration posts insurers' preliminary rate requests for 2017 this week.
Health plans are asking for sharp price increases, after suffering big losses on exchanges in the last two years. Regulators caution that these are preliminary requests and final rates could look a lot different.
Insurers cite rising drug costs and patients who utilize a lot of medical services for the price-hike requests, which range from 17 percent in New York, and more than 20 percent in Virginia, to 30 percent rate increase requests from Oregon's largest insurers.
Reducing risk of losses
One of the underlying reasons for the big requests has to do with the expiration of the reinsurance program under the Affordable Care Act, which had served to offset some of the losses due to sicker customers who racked up high medical bills.
The end of reinsurance in 2016 was written into the ACA because the law's backers had expected that the individual market on the exchanges would have stabilized by now. It hasn't, and enrollment has not met expectations because the plans haven't been able to attract as many young healthy enrollees as anticipated.
"Had reinsurance phased out with a more balanced health-risk pool, it may not have been so problematic for the insurers," said Ana Gupte, a senior health-care services analyst and managing director at Leerink Partners.
Without the program to offset losses, insurers are looking to reduce their risk and their losses in 2017, Gupte said.
"It's really a big problem, and it led to the exit of UnitedHealth from 27 of the 35 states that they are in, and also Humana has exited a handful of states," she said.
Bye-bye bronze plans?
Consumers on the lowest-tier "bronze" plans could see some of the biggest jumps in prices if preliminary requests are ultimately approved. In some cases, insurers are abandoning the low-premium offering altogether.
A unit of CareFirst Blue Cross in Virginia said it will transition all of its bronze plan members to mid-tier, or so-called silver, plans in 2017. The switch will mean a 70 percent price hike for those customers, according to the company's rate request filing.
Bronze plans have been some of the biggest sources of losses for insurers because the low rates attract sick patients who cost more, but often drop coverage during the year.
"Tons of people came in, got what they needed and left. And they ended up 20 percent — in some cases 30 percent — more expensive than those who came in and stayed," said Dr. Martin Hickey, CEO New Mexico Health Connections, a nonprofit cooperative insurer.
His company's plans are finally starting to see some stability on the exchanges, Hickey said. New Mexico Health Connections saw its first quarter without a loss in the first three months of this year. It's a rare success among coops formed under the ACA; half of all coops were shuttered due major losses.
For 2017, Hickey said, they are raising prices to make sure they are able to pay for the worst-case scenario in terms of medical costs. But he said he worries the potential for a downward spiral in the Obamacare exchange market, where high rates will drive away even more young, healthy customers.
"With these heavy rate increases, the problem is the people who are going to say for a $695 penalty, to heck with it," Hickey explained. "The healthy abandon insurance, and what you're left with is the sick, and you can never raise your rates high enough."
Has enrollment peaked?
Near term, the exchange market is here to stay, Leerink's Ana Gupte said. However, she expects it may have peaked when it comes to enrollment. Insurers likely won't be able to attract consumers beyond the 10 million or so who now qualify for government subsidies to make premiums affordable.
"I don't think the health insurance exchanges will become a mainstream channel of purchase for the individual market in this country," Gupte explained. "The exchanges will likely continue to remain a niche offering."
The preliminary requests will be posted for public review on HealthCare.gov on May 25. In many states, the regulatory rate review is already underway.
Insurers have until late August to file their final 2017 plan offerings with approved rates.