The Truth About Obamacare’s “Double-Digit” Premium Increases

They’re not quite a myth, but they’re not as common as many would have you believe.

U.S. Sen. John Thune (R-SD) speaks on Capitol Hill October 12, 2011 in Washington, DC. Senate Republicans spoke to reporters briefly after attending their weekly Senate Republican Policy Committee closed luncheon meeting. (Photo by Mark Wilson/Getty Images)
National Journal
June 24, 2015, 2:35 p.m.

Con­sumers are fa­cing a “double-di­git” in­crease in their in­sur­ance premi­ums come 2016, and Obama­care is to blame for it.

That ar­gu­ment has be­come a fa­vor­ite of Re­pub­lic­ans in re­cent weeks, ever since the be­gin­ning of June when in­surers re­por­ted how much they planned to charge next year. Sen. John Thune was the latest Wed­nes­day, when the South Dakota Re­pub­lic­an took to the Sen­ate floor to call Obama­care a fail­ure and cite “rate in­creases of 20, 30, even 40 per­cent” as evid­ence.

The GOP com­plaint is at least par­tially ac­cur­ate: Some con­sumers will in­deed face more than 10 per­cent in­creases and, in some of those cases, new Af­ford­able Care Act reg­u­la­tions will be partly or fully re­spons­ible. But it’s also in­com­plete, as the rate hikes prom­ised by Re­pub­lic­ans are the ex­cep­tion, and non­par­tis­an ana­lys­is of next year’s prices pre­dict that most Amer­ic­ans will see their bills rise by far less.

Pre­lim­in­ary 2016 premi­ums for bench­mark sil­ver plans in ex­changes grew by 4.4 per­cent in ma­jor met­ro­pol­it­an areas in 11 states, in­clud­ing the Dis­trict of Columbia, ac­cord­ing to ana­lys­is by the non­par­tis­an Kais­er Fam­ily Found­a­tion. While this is much lower than the num­bers be­ing tossed around the Sen­ate floor, it’s a sharp­er in­crease than last year, which saw premi­ums climb by 2 per­cent na­tion­wide.

An Avalere Health ana­lys­is re­leased this month found sim­il­ar res­ults. Sil­ver plans on ex­changes (the plans of choice for more than two-thirds of en­rollees) are ex­pec­ted to in­crease 5.8 per­cent in the eight states thatA­valere ex­amined.

“While re­cent pub­lic at­ten­tion has fo­cused on a sub­set of plans that filed for premi­um in­creases of 10 per­cent or more, these data re­veal that most plans are pro­pos­ing more mod­est in­creases,” said Car­oline Pear­son, seni­or vice pres­id­ent at Avalere. “Not­ably, fi­nal premi­ums could be even lower than those pro­posed.”

In­surers are re­quired to re­port pro­posed in­creases of 10 per­cent or more by June 1, and they’re sub­ject to re­view by the state or fed­er­al gov­ern­ment. Rates lower than 10 per­cent and not sub­ject to re­view don’t have to be pos­ted un­til open en­roll­ment be­gins. That means in most states, only the most ex­treme cases of premi­um hikes are seen at the re­port­ing dead­line. (Some states provide ac­cess to all pro­posed rates, which Kais­er used for its study.)

In­surers de­term­ine premi­um rates by look­ing at their claims data from the pre­vi­ous year and ad­just­ing their premi­ums ac­cord­ingly. They also take in­to ac­count oth­er factors, such as ex­pec­ted in­creases in health care costs and who they think will en­roll the next year.

In some ways, this is an an­nu­al event: In­surers pro­pose premi­um rates (spe­cific­ally those great­er than 10 per­cent), the rates in­cite pan­ic, and then of­ten they come down. But this is the first year that in­surers have pro­posed rates un­der the ACA with claims data to in­form them. Since the ex­changes began op­er­a­tion in Janu­ary 2014, this is the first year that in­surers have a com­plete set of data on how much health care their en­rollees used by the rate-pro­pos­al dead­line.

And while Obama­care has re­shaped the in­sur­ance mar­ket, not all premi­um in­creases can be laid at the law’s feet. In­surers’ un­cer­tainty over up­com­ing con­di­tions, along with rising health costs in gen­er­al, con­trib­ute to more ex­pens­ive premi­ums. “In­surers may have data “¦ but they still have to look in­to their crys­tal balls and pro­ject how many people will en­roll next year and what those en­rollees will look like,” said Larry Levitt, seni­or vice pres­id­ent at Kais­er.

But while Re­pub­lic­ans are cherry-pick­ing cases to make their ar­gu­ment, they’re not mak­ing them up en­tirely. In a House Ways and Means sub­com­mit­tee meet­ing Wed­nes­day, law­makers poin­ted to in­stances where in­surers were seek­ing drastic in­creases. For ex­ample, in Mary­land, two of eight op­tions in the in­di­vidu­al mar­ket are seek­ing more than a 30 per­cent in­crease, and a third op­tion is seek­ing a 26.7 per­cent premi­um hike.

“Many of the pro­posed in­creases are eye-pop­pingly huge,” said sub­com­mit­tee Chair­man Peter Roskam.

Loom­ing over the dis­cus­sion of next year’s in­sur­ance rates is a Su­preme Court de­cision that will go a long way to­ward de­term­in­ing what price in­sur­ance con­sumers can af­ford. In King vs. Bur­well, the justices will de­cide wheth­er the Af­ford­able Care Act as writ­ten al­lows the IRS to dis­trib­ute in­sur­ance sub­sidies to people in states that are on the fed­er­al ex­change. Should the court rule that the IRS is in the wrong, an es­tim­ated 6.4 mil­lion people across 34 states will lose those sub­sidies.

And if that hap­pens, all bets on next year’s premi­ums are off. Many sub­sidy re­cip­i­ents will be un­able to af­ford in­sur­ance, lead­ing the health­i­est among them to drop out. The re­main­ing pool of un­healthy people will see their premi­ums rise yet again, prompt­ing more people to drop out, and re­start­ing a cycle known as the in­sur­ance mar­ket “death spir­al.”

A sep­ar­ate Avalere study found that con­sumers would face av­er­age an­nu­al premi­um in­creases of $3,300 this year if the court rules in fa­vor of King.

“These rates are premised on the as­sump­tion that the court will side with the gov­ern­ment. If the court signs with the chal­lengers, all bets are off,” Levitt said. “There’s no doubt that we’d see some in­surers pulling out of the mar­ket and the ones that stay would raise rates sig­ni­fic­antly next year.”

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