Colossal Rate Increases; The Exception Or The New Rule

Insurance premiums under the Affordable Care Act (ACA) are receiving increased attention due to reports of sharp 2017 increases by insurers. Across the nation, insurers have submitted initial premium increases and it is not uncommon for insurers to submit proposed rate increases in excess of 40-50% for 2017. State regulators will review the requests meticulously and verify their adequacy before the rates are approved and finalized. The map below provides a snapshot of proposed rate increases for the ACA-compliant individual market requested to date. Preliminary average weighted requests for insurance premium increases range from as low as 3.5% (Rhode Island) up to 56% (Texas).[1]

2017 Rate Filing Announcements

The upswing in insurance premiums could be directly correlated with the fact that the ACA has provided medical coverage for an additional 20 million people while eliminating the pre-existing conditions clause.[2] Consequently, the risk pools for health plan populations are more expensive than originally anticipated and insurers are being required to cover these expenses.[3] Essentially, insurers established rates for the marketplace with very limited data on the incoming population, resulting in many carriers underestimating enrollee utilization and claims costs.

The 2017 rate increases are largely a result of carriers playing catch-up with insurance premiums and adequate pricing. The “community rating” underwriting methodology was new to many carriers in 2014 and very little data existed on the populations expected to begin seeking coverage under the ACA’s “guaranteed issue” policy. Additionally, because of the Essential Health Benefit (EHB), benefits are richer and an enrollee population that’s sicker than originally predicted is resulting in higher utilization and higher costs.  Finally, with the elimination of the reinsurance and risk corridor protection programs that were originally intended to help spread the risk and costs among participating insurers, insurers are now having to take on more financial risk than in the past.

The aforementioned factors result in additional uncertainty regarding the future of insurance premiums. On the one hand, insurers are gaining experience in the ACA and are in a better positioned than in previous years to forecast the health and claims of their enrollees which should help to reduce enormous premium hikes in the future. The push towards value-based care and the focus on reforming the health care industry into a system that incentivizes quality over quantity may also help to reduce the ever rising costs of health care. On the other hand, uncertainty in the marketplace persists; the health care landscape could change drastically with the upcoming presidential election, health insurance mergers and acquisitions, payers withdrawing from the marketplace, and government protection programs for payers ending.

The year of 2017 is being marketed as a year of correction as payers struggle to overcome the challenges and changes that have been brought about by the ACA. It is vital that payers and policy makers come together to address rising insurance premiums as we can’t be sure how many more years the market can sustain premium increases like next year’s.

Leavitt Partners is currently tracking and monitoring health insurance premium trends as well as following the Center for Medicare and Medicaid Services (CMS) and Health and Human Services (HHS) guidance to further understand the impact new regulations and rules will have on future health insurance premium rates.

[1] Weighted average rate increases for each state were calculated by pulling enrollment data from URRT and rate submission files to calculate each carrier’s market share and weight each carrier’s rate increase by the corresponding market share.

[2] Health Payer Intelligence. (July, 2016). How the Affordable Care Act changed the face of health insurance? Access here.

[3] Modern Healthcare. (May 14, 2016). What, me buy insurance? Access here.