As Insurers drop Obamacare
patients rates increase, deductables rise at least 10%! Good Going Barry!
OBAMACARE PREMIUMS MAY RISE BY
10% IN 2017—HERE'S WHY
This article was originally published on the Motley Fool.
Get ready, because the 2017 enrollment period for Obamacare—officially known as the Affordable Care Act—is right around the corner.
Slated to begin on Nov. 1, 2016, the enrollment process for Obamacare could come with a sticker shock this year. Based on early rate request indications from individual state press releases, and an analysis conducted by the Kaiser Family Foundation of 14 major cities in mid-June, the average Obamacare healthcare premium in the U.S. could be headed higher by at least 10 percent in 2017.
It's hard to pick out a single culprit,
as nearly every state that's reported insurer rate hike requests thus far has
an average or weighted increase north of 10 percent. In virtually every state a
big premium hike appears likely. Here are the four reasons why your
Obamacare healthcare premium is probably going up by at least 10
percent next year.
Not enough young adult enrollment
The first big problem for Obamacare is
that it hasn't attracted the most sought after customers: healthier young
adults. Since young adults are less likely to go to the doctor, or to need
expensive medical care, their premiums are used—and needed—to offset the costs
to treat older and often sicker individuals. Although young adult enrollment
improved in 2016 from the previous year, there are still not enough young
adults enrolled in Obamacare to make a favorable difference for insurers.
Two factors explain the weakness in
young adult enrollment. To a lesser extent, the "invincibility"
factor is playing a role. Young adults who feel healthy and/or don't visit
their doctor regularly would just as soon not be insured. Reaching this
"invincible" crowd of young adults could prove tough for Obamacare.
But I believe the bigger factor is that
the Shared Responsibility Payment, or SRP, isn't an adequate incentive to
coerce young adult enrollment. The SRP is the penalty you pay for violating the
individual mandate and not buying health insurance. In 2014, the SRP averaged
only $150 per noncompliant person based on data from H&R Block. In
2016, the Kaiser Family Foundation believes the average SRP could rise to $969.
While a lot higher, $969 is still far less than the cost of the cheapest bronze
marketplace plan in any given state. Until the SRP is more closely reflective of
annual bronze-level plan costs, a sizable number of young adults could stay on
the sidelines.
Obamacare enrollees are sicker and costlier
Secondly, insurers have discovered that
Obamacare enrollees tend to be both sicker and costlier than most other types
of enrollees.
According to a study conducted by the
Blue Cross Blue Shield Association in April, after analyzing the medical claims
of roughly 25 million employer-based group members, the average cost per member
was $457 a month through the first nine months of 2015. Comparatively,
analyzing 4.7 million individual Obamacare enrollees produced a monthly cost of
$559 over the first nine months of 2015. That works out to a 22
percent increase over employer-based membership.
The reason insurers are coping with
substantially higher costs for Obamacare enrollees is actually pretty easy to
understand. Prior to Obamacare's implementation, insurers had the ability to
handpick who they'd insure. This meant people with pre-existing conditions, who
were potentially costly for insurers to treat, could be legally denied
coverage. However, under Obamacare insurers aren't allowed to deny coverage
based on pre-existing conditions. When Obamacare became the health law of the
land, Americans who'd been ostracized from the healthcare network for having
pre-existing conditions flooded back in, leading to adverse selection for
insurers. Compounded with too few young adults enrolling, this has led to high
medical costs, and even losses, for many insurers operating on Obamacare's marketplace
exchanges.
The risk corridor was a failure
Thirdly, the risk corridor proved to be
an utter failure.
The risk corridor represented a type of
risk-pooling fund among insurance companies operating on the Obamacare
marketplace exchanges. Here's how it worked: Insurers that were excessively
profitable would be required to put some of those excess profits into a fund.
In turn, insurers that were losing excessive amounts of money because they
priced their premiums too low would be able to request funds from this risk
corridor in order to stay afloat. In effect, the risk corridor was designed to
promote competition, especially among new insurers in the individual market,
and give insurance companies a year or two to find the sweet spot when it came
to pricing their premiums.
Unfortunately, the risk corridor ran
into plenty of issues. Just $362 million wound up being added because most
insurance companies weren't overly profitable. In contrast, insurers wound up
requesting $2.87 billion from the risk corridor to cover big losses. With only
12.6 percent of requested funds being paid out, many smaller insurers were
forced to close up shop, including 16 of Obamacare's 23 approved healthcare
cooperatives, or co-ops. Co-ops are run by the people, for the people, and
they're a nice low-cost alternative to perceived-to-be profit-hungry national
insurers. With these low-cost options disappearing at an alarming rate,
insurance premiums have begun to adjust higher.
The other risk corridor issue stems
from the federal government purportedly changing its stance on funding the risk
corridor. In an ongoing suit against the federal government, insurance provider
Highmark contends that the federal government initially offered to fund the
risk corridor even if excess profits from insurers didn't meet loss request
demands. The government supposedly changed its stance on this point, and
instead ran the risk corridor as a budget-neutral program, meaning the only
money paid out is what was collected from overly profitable insurers.
Long story short, the failure of the
risk corridor decimated the low-cost co-ops and discouraged new entrants into
the individual market.
There are fewer choices among insurers
The final reason your premiums are
soaring relates to a declining number of insurer options to choose from. As
noted above, the failure of the risk corridor has eliminated more than
two-thirds of the available healthcare cooperatives, and there may be more
failures to come. But it's not just low-cost options that are bowing out.
UnitedHealth Group announced earlier
this year that it could lose up to $500 million from its Obamacare plans in
2016. This comes after more than $400 million in losses from its Obamacare
plans in 2015. Finding Obamacare to be more trouble than it's worth,
UnitedHealth is departing from 31 of the 34 marketplace exchanges in 2017.
Obamacare only accounts for a small single-digit percentage of annual revenue
for UnitedHealth, but leaving the exchanges should have a positive impact on
its margins. Of course, it'll also leave hundreds of thousands of people on the
hunt for a new health plan in 2017.
Humana is following a similar path. The national insurer recently announced that it would be reducing its individual coverage from 19 states to just 11, at most, in 2017. But this superficial figure doesn't tell the real story. In terms of counties, Humana is scaling back from offering coverage in 1,351 counties in 2015 to just 156 in 2017. That's a nearly 90% decline, and it's all on account of Humana dealing with excessive losses tied to Obamacare.
Just last week Aetna also went on the offensive following word that U.S. regulators plan to fight its attempted takeover of Humana. Originally, Aetna planned to expand its Obamacare offerings. That was assuming its merger with Humana went through, and the new entity took advantage of substantial cost synergies. With that merger possibly not happening, Aetna's new stance is to hold off on expanding, or potentially even cut its offerings.
The end result is this: competition is decreasing, which is bad news for the consumer, and insurers are losing money and needing to hike premiums in order to offer a sustainable product over the long-term.
Most states are still negotiating with the initial rate requests for 2017 in the hope of pushing them lower and making healthcare insurance more affordable. However, if I were a betting man, I'd suggest there's a better than 50-50 shot that we're going to witness Obamacare premium inflation top 10 percent as an average across the country in 2017.
