In an effort to curtail further outrage over the Affordable Care Act, the Obama Administration is urging states to cut back their requested rate increases for 2016. Some insurance providers are claiming they lost money on policies sold in the public marketplace due to new customers being sicker than expected. (Who would imagine that someone buying health insurance would get sick? The nerve of some people!)
Carriers assert they paid out more in claims than they collected in premiums, leaving them with an unsustainable business model. They are requesting anywhere from 10% to 50% increases in rates. (BCBS of Minnesota wins the prize for the largest at 50%; if you listen closely you can hear them firing actuaries.)
While we all shed a tear and say a prayer for the insurance companies, the Obama Administration has a few counterpoints. The federal government is arguing that new customers acquired in 2016 will be healthier than past patients. This group of late arrivers are less likely to be sick than those who used the public marketplace from the beginning.
The Obama Administration is further arguing that people who signed up in the past have now received the treatment they had previously put off, leading us to believe they should be healthier from here on out.
Another argument is that the increase in the tax penalty for those who choose (like we have a choice) to go without health insurance in 2016 should motivate those who have neglected to sign up to do so. These are mainly healthy individuals who have not deemed health insurance a necessary expense.
There is much uncertainty with insurance companies, but I believe there is a tendency to ask for higher rates than necessary in order to pad the numbers. It’s just like selling a car; you always ask for more than you think the customer will accept because the worst they can say is NO. And every now and again they will say yes, and you’ve just made a month’s commission on one sale. Or, in this case, you’ve padded your rate request by a point or two to set a precedent for years to come.
The concern is not for the poor, who have the majority of their premiums subsidized by the government; they are largely shielded from rate increases. As always the burden will fall on the middle class. Those who are ineligible for federal subsidies will struggle to pay the increase in premiums.
It remains to be seen whether any of these preliminary rate hikes will stick. Regulators in many states have the power to reject price increases, and many who don’t are expected to at least pressure insurers to soften their plans.
Until then we will wait with bated breath to see who wins this standoff, and in doing so, who will set the standard for rate increases in the foreseeable future.