California's Obamacare premium sticker shock
California's Obamacare health insurance exchange dropped a pretty big surprise on both supporters and critics of the Affordable Care Act earlier this week when it announced an average increase in premiums next year of 13.2 percent.
That's particularly large by California standards, given that the state's exchange -- called Covered California -- has earned kudos for keeping average premium hikes down to only about 4 percent the past two years. No wonder an average 13.2 percent jump got everyone's attention.
A lot is at work behind that increase, and many of the factors will likely play out at all state exchanges to some extent. First is the expiration of two federal government programs designed to help keep costs down for insurers in the early days of Obamacare. The most significant one, often called the reinsurance program, helped pay large health care costs for the sickest and most expensive patients. The end of the reinsurance program is worth a 4 percent or 5 percent premium increase, estimated Gary Claxton, vice president of the Kaiser Family Foundation.
Even more significant, however, is the fact that insurers throughout the exchanges underestimated the number of sick people who would sign up for Obamacare and the amount it would cost to treat them, Claxton explained. "Where we're seeing the highest premium increases is also where we're seeing insurers with the biggest losses," he added. In addition, this is the first year insurers have had reliable patient claims and health status data to use for estimating future costs.
Finally, there's the issue of overall rising health care costs, especially in the pharmaceutical sector. Peter Lee, Covered California's executive director told Kaiser Health news, "We can be confident the rate increases are directly linked to health care costs, not administration or profit, which averaged 1.5 percent across our contracted plans."
Whatever the reasons, the California hike is bound to be fodder for Obamacare critics during this election season. Already Donald Trump used a proposed 60 percent premium increase from Blue Cross in the Texas marketplace as ammunition for his intention to abolish the ACA. What's more, if California -- known for its well-run exchange -- has such a big jump, critics argue it can only mean bad news from other states as well.
Complete premium details from other state exchanges aren't yet available, but a recent analysis from Kaiser Family Foundation of 14 major metro areas that have disclosed 2017 rates gives an early look. The report found an average premium jump of 11 percent for the lowest-cost silver plans, ranging from a decrease of 14 percent in Providence, Rhode Island, to an increase of 26 percent in Portland, Oregon.
Supporters of Obamacare point out that the number of uninsured Americans has been drastically reduced since the ACA was enacted. In California, for example, 8.1 percent of residents were without health insurance last year, down from 17 percent in 2013.
They also point out that exchange premium increases apply only to the 12 million people who purchase coverage through Obamacare. The vast majority of Americans are covered through their employers or by Medicare and Medicaid.
What's more, the dire headline numbers don't affect all exchange customers the same way. Consumers "may read about proposed 20 percent, 30 percent or 40 percent increases in premiums for a marketplace plan in their state and not know whether the average increase across all plans is lower, whether it will affect their plan or that they can shop for a much cheaper plan," wrote Drew Altman, president and chief executive office of the Kaiser Family Foundation in a recent Wall Street Journal blog post.
How much ACA consumers in California and elsewhere will feel the hit in their pocketbook depends on where they live, the number of competing insurers in their area and whether they qualify for government subsidies to help pay for premium expenses. In California, 90 percent of exchange customers do receive some sort of assistance. And when premiums rise, generally these tax credits increase as well. That may mean consumers who receive credits won't feel the full brunt of the premium hikes.
Come this fall's open-enrollment period, which starts just a week before the election, exchange customers can switch to a cheaper plan. In California, that's not so hard to do because it's one of the country's biggest exchanges with a relatively large number of competitors in most areas. According to Covered California's Lee, almost 80 percent of customers could pay less than they're paying today or pay no more than a 5 percent increase if they switch plans.
Of course, hassles are involved with changing plans. A plan with less expensive premiums may mean higher co-pays and deductibles or switching to a new network of health care providers.
Such subtleties are likely to be lost on politicians from both parties, however, as the debate over Obamacare continues to rage in this election season. In the meantime, exchange consumers will have to wait to see what health insurance in 2017 is going to cost them.