Is ObamaCare Causing Health Insurance Premiums to Rise?

The full title of the legislation commonly known as ObamaCare is the Patient Protection and Affordable Care Act. It's often described using just the last three words — the Affordable Care Act — and “affordability” was at the heart of the White House’s argument for the law. But so far, there are few signs that health care will become more affordable as a result of the law. Indeed, it increasingly looks as if the opposite could be true — that ObamaCare may be causing higher premiums rather than preventing them. 

Over the weekend, The New York Times published a report noting that health insurers across the nation are both “seeking and winning double-digit increases in premiums” — this despite the fact that “one of the biggest objectives of the Obama administration’s health care law was to stem the rapid rise in insurance costs for consumers.”

The Times reports that health insurers have successfully raised rates by at least 20 percent in Ohio and Florida, increases that it says add several hundred dollars to the monthly cost of insurance. And in California, three insurers have requested increases of more than 20 percent for individuals who do not receive employer-sponsored insurance and small businesses. The story describes those two groups as “particularly vulnerable” to high rate increases.

The Times isn’t the first to report big health insurance increases coming down the pipeline. Aetna’s CEO warned last month that small and individual group markets were likely to increase by an average of 25 to 50 percent, and suggested that some policyholders might see their rates double.

What’s going on? Why are these rates going up?

A big chunk of the Times article focuses on the law’s insurance rate review provision, which gives the federal government the power to review but not reject health insurance rate increases.

Some state insurance regulators already have the power to reject rates, however, and the Times suggests that the double-digit rate increases  “[demonstrate] the striking difference between places like New York, one of the 37 states where legislatures have given regulators some authority to deny or roll back rates deemed excessive, and California, which is among the states that do not have that ability.”

So is the problem that ObamaCare did not grant new powers to reject rate increases? California health insurance commissioner Dave Jones offers an explicit endorsement of this theory, saying that the lack of new authority to reject health insurance rate increases is a “huge loophole in the Affordable Care Act.”

Jones might have rejected higher rates in California if given the chance, and it's true that some states, Massachusetts in particular, have used their rate authority aggressively. But the power to reject rates has not always stopped double digit increases in other states. In fact, according to a 2011 Congressional Research Service report on health insurance rate review policies in the states, both Ohio and Florida have “prior approval” requirements in place in their individual, small, and large group markets. In contrast to California’s “file and use” rules, which allow regulators limited power to disapprove a filing if an insurer is found to not be in compliance with some other regulation, prior approval rules mean that “insurance companies must file proposed rate changes and the state has the authority to approve, disapprove or modify the request.” And yet according to the Times, both states have seen premium increases in excess of 20 percent.

Perhaps there's another explanation? For example: Might ObamaCare’s new rules and regulations being playing some role in the increases? There’s good reason to think the law itself is at least partially responsible.

It's seems likely, for example, that ObamaCare’s new coverage mandates have contributed to some of the increase in the individual market: Consulting firm Aon Hewitt estimates that those premiums have gone up about 5 percent as a result of the law.

That explains some of the increase. But not all of it. Which is why those looking for another culprit should consider the possibility that a provision intended to help consumers get better value for their money is actually costing them higher premiums.

That provision, often referred to as the 80/20 rule, sets mandatory medical loss ratios (MLRs) for health insurers. The MLR is an accounting requirement which says that insurers have to spend at least 80 percent of their total premium revenue on medical expenses, leaving just 20 percent for administrative costs, marketing, and other non-medical expenditures. Any insurer that fails to meet this target must issue rebates to customers. This year, insurers rebated about $1 billion.

The MLR provision creates two incentives for insurers to jack up health insurance premiums. One is the plain fact that with profit and administrative costs capped as a percentage of premium revenue, the easiest way to generate larger profits is to charge higher premiums.

The other is that the rebate requirement means insurers may need to charge higher up-front premiums in order to protect themselves from the risk of a bad year. As Scott Harrington, a professor in the University of Pennsylvania's Department of Health Management, explained in a November 2012 paper, that’s because health insurance claims — and thus MLRs — fluctuate significantly between years. Harrington's paper, which got funding from a health insurance trade group, argues that the annual variation, and the resulting uncertainty, creates a problem for insurers: If claims are low in a given year, they end up rebating the difference to the customer because of the MLR rule. If claims are unexpectedly high, however, they end up eating the difference. Insurers thus have a incentive to protect themselves by charging high premiums at the outset, and then paying those premiums back in rebates should claims come in at low or expected levels.

Is the MLR rule causing the higher premium requests? It's hard to say with certainty, but it fits the bill in many ways: Harrington's analysis suggests that the high up front premiums should be concentrated in the small-group and individual markets, which is exactly what the Times reports. No matter what, it's clear that ObamaCare isn't resulting in lower premiums. And for many people, in the years after the law, premiums aren't just going to up up a little. They're going to rise a lot. 

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  • Marshall Gill||

    health insurers across the nation are both “seeking and winning double-digit increases in premiums” — this despite the fact that “one of the biggest objectives of the Obama administration’s health care law was to stem the rapid rise in insurance costs for consumers.”

    Intentions do not necessarily produce their desired results? Unpossible.

  • Red Rocks Rockin||

    You mean adding a bunch of people to the health insurance rolls with pre-existing conditions, while extending and expanding SCHIP, resulted in cost increases for everyone else? Who could have seen that coming?

  • Auric Demonocles||

    You mean adding a bunch of people to the health insurance rolls with pre-existing conditions, while extending and expanding SCHIP, resulted in cost increases for everyone else?

    That is unpossible.

  • Palin's Buttplug||

    Bans on pre-existing conditions go into effect in 2014.

    Fail.

  • Jordan||

    An insurance company would never raise rates in anticipation of a new law. Fail^2

  • Rights-Minimalist Autocrat||

    Because businesses only react to the current situation, and don't ever bother to look a year into the future, ever.

  • PapayaSF||

    You are thinking of politicians.

  • Rights-Minimalist Autocrat||

    No, pols look 10 years into the future. That's how they know the gazillion dollars of spending cuts will happen then.

  • Sevo||

    Palin's Buttplug| 1.8.13 @ 10:17AM |#
    "Bans on pre-existing conditions go into effect in 2014.
    Fail."

    This should be put someplace safe and kept as a constant reminder of the ignorance of lefties everywhere.

  • Brandon||

    Don't blame lefties everywhere for Shrike being a fucking idiot.

  • Red Rocks Rockin||

    Your whole life is a fail, PB. At least try and keep up.

  • MarioLanza||

    Actually, the ban on pre-existing conditions for those under 19 has already gone into effect.

    Let insurance companies be insurance companies!!! No car insurance company would allow you to total your car and then apply for car insurance. If I want an insurance plan that covers up to a million only, then that should be between me and my insurance company. The removal of lifetime limits has already gone into effect. There are also provisions that regulate the appeals process - read increase costs for insurance companies.

  • Marshall Gill||

    No car insurance company would allow you to total your car and then apply for car insurance.

    That's just crazy talk.

  • MarioLanza||

    Marshall Gill calls my comment "crazy talk". Marshall Gill apparently doesn't know how insurance works. Covering people with pre-existing conditions is NOT insurance. It is a giveaway at the expense of all the people that have been paying their insurance premiums.

  • JeremyR||

    He's being sarcastic.

    Guess you didn't watch the Simpsons back when it was funny. It's a line from that.

  • dbobway||

    Why can't I buy health insurance from a lizard?

    Why do have to by insurance that has gender differences when,well we are different?

    I don't have to have car insurance if I don't drive!

    Why does does a group of appointed people tell my Dad if can keep getting medicine to prolong his life or not?

  • GregMax||

    What I wanna know is when did it become "society's" responsibility to provide health care for people who have none? Let them use good judgement, take care of their health and drop dead if they can't get health care.
    They used to argue that motorcycle helmets could be mandated because government would have to pay for brain-damaged people's health care if they bang their heads . . . Why? You ride and get brain damage, hasta la vista.

  • Bill||

    Incredibly stupid comment. They raise rates in anticipation of what will come in the next few years.

    The other part of it is that instead of letting the market decide and people pick the combination of cheap and effective coverage they desire, they went with a one size fits all rule.

    Now you have to raise rates to protect your company for some of them but you also have the common effect in other REGULATED industries that the company and the regulators are in bed, and the companies lobby politicians and large rate increases are approved (or small to medium ones every few years) and consumers have no options.

  • Charlotte Falcon||

    Not for kids

  • juris imprudent||

    Intentions do not necessarily produce their desired results?

    It's almost like a law cast in a ferrous material.

  • Brian (Despair)||

    John Roberts, you could have prevented this. Fucking Roberts.

    Roberts is pig disgusting.

  • Disgusted Dem||

    Here in the U.S., we had news organizations and a public that let the President get away with threatening the Supreme Court prior to the ACA vote. Afterwards, news pundits rejoiced that Roberts had saved the SC. Meanwhile, in Egypt, masses of people took to the street in protest when their courts were threatened.

  • Fist of Etiquette||

    ...this despite the fact that “one of the biggest objectives of the Obama administration’s health care law was to stem the rapid rise in insurance costs for consumers.”

    Which is naturally why you have insurance companies writing the law. Anyway, it's all stepping stones to single payer.

  • albo||

    Yep. Obamacare is designed to fail and screw everything up so bad that the only choice is medicare for all.

  • MarioLanza||

    "Obamacare is designed to fail and screw everything up so bad that the only choice is medicare for all."

    It won't be for all. It will be for all. Long lines, inability to see specialists, treated like cattle,...That's what you have to look forward to.

  • MarioLanza||

    Should read "It won't be Medicare for all, it will be Medicaid for all."

  • Mesteve||

    Yep. Leave just enough of a "market" in place to have something to point the finger at when it fails to meet their "goals."

  • Bill||

    It doesn't have to be a real market, an imaginary one works just as well.

  • ||

    Yeah, I think the actual intention of the law was to the make the problem worse, so that they can swoop in and "make it better" again in the future. There seems to be an emerging pattern. It's too bad the majority of people are too ignorant to get it. Just like with Medicare and Medicaid, usually by the time these issues resurface, the policies that led to the problem are so out of sight and have become so much the norm, it doesn't dawn on them that maybe governmental policies are the problem to begin with.

  • Calvin Coolidge||

    I am shocked - shocked! - to see that a complex series of Federal mandates and regulations has not had the effect of reducing costs. Next, you will tell me that gravity actually pulls things down, despite repeated promises by government officials that it would hurl things into the air.

  • Drake||

    Toss in 49 states with different regulations, several territories, and New York - whose regulations are so malevolent you have to form a separate corporation to write their insurance to prevent their poison from spreading.

    I worked at an insurance company getting out of the health line of business. Entire floors of lawyers, clerks, and IT programmers who did nothing but attempt to stay in compliance.

  • mad libertarian guy||

    Entire floors of lawyers, clerks, and IT programmers who did nothing but attempt to stay in compliance.

    That's unpossible. Obama told me so.

  • Bill||

    Right. They need more lawyers, clerks but now are expected to do it with 20% of their income.

    And every company in every location in ALL years, no matter the size of the company, should all have the same exact formula. It boggles the mind that anyone is stupid enough to think this is a good idea.

  • Nowsane||

    Good one! A true case of unintended consequences.

  • ||

    My parents' rates went up 7- (mom) and 10-fold (dad).

    Total monthly premium for both of them: $7400

    And they're serious about that. Left me speechless.

  • Rasilio||

    $88,000 a year?

    Seriously what is the point in even carrying insurance at that point.

    By the time you get done with deductables and copays you'd be looking at needing to spend over $100k per year before insurance gets to a break even

  • ||

    Exactly. I wonder if it was Aetna's way of firing them. This was their rock-bottom, higher co-pay, high-deductible "affordable" plan, too. These are retired people with absolutely no income but what they pull in from doing odd jobs.

    Maybe if I was super-rich, I'd put a personal physician on retainer for that much.

    Just unbelievable that Aetna would expect anyone to pay that much.

  • Drake||

    No insurance company wants old people with individual plans on the books. The cost of administering the plans along with the claims make them unprofitable at any reasonable price.

    So yes, Aetna would be thrilled if they dropped their plan.

  • NoVAHockey||

    for a fraction of $7500 a month, you can find a boutique physician practice.

  • Rasilio||

    You could get a personal physician on retainer for a hell of a lot less than that, probably about a quarter of it and get covered for pretty much anything short of ongoing cancer treatments

  • A Secret Band of Robbers||

    How long until I can buy affordable catastrophic health insurance on Silk Road?

  • Red Rocks Rockin||

    Yeah, that's "Fuck you, go on Medicare" rates.

  • Brandon||

    Seriously what is the point in even carrying insurance at that point.

    To avoid the penaltax?

  • LibertariansRLiars||

    That which can be asserted without evidence can be dismissed without evidence.
    Euclid.

    Care to prove that?

  • ||

    You want me to ask mom to scan their Aetna contracts and previous premium slips and fax them to me so I can post them on Facebook for your personal verification?

    Hmm. No.

    I saw the documents with my own eyes, read the contracts, and although I have rounded to the hundreds place, the number is accurate.

    Mom called today to ask if they were serious and spoke with 3 different people at Aetna who were rendered speechless when they saw what my parents were being asked to pay.

    Their offered solution? Apply again, as if they were new (vs. transfers, as they moved back to TX this year). Pretty sure mom told them to pound sand.

    They'll be going insurance-free. Dad can apply for medicare this year... Mom is years too young yet.

    All the trouble could have been avoided if we could carry insurance with us wherever we go. Just ridiculous.

    Also, fuck you LRL. I don't lie.

  • Hopfiend||

    The stoopid troll wants evidence. You're right, there are no consequences to continuous, capricious interventions in any market, anywhere, at anytime.

    This idiot makes me miss Tony

  • Red Rocks Rockin||

    At least Dr. Nick gives you a price up front.

  • robc||

    I can answer that with my own coverage:

    Yes. It went from 135.10/month last year to 159.24/month this year. Inflation and me being 1 year older arent enough to account for that increase.

    They keep making changes to get it in line with qualifying under ObamaCare.

    I hate to see what the rate is going to do next year when the deductible has to come down from $2500 to $2000 (I think).

  • The Late P Brooks||

    The New York Times published a report noting that health insurers across the nation are both “seeking and winning double-digit increases in premiums” — this despite the fact that “one of the biggest objectives of the Obama administration’s health care law was to stem the rapid rise in insurance costs for consumers.”

    What causes insurance premiums to rise? Quite possibly the expectation of increased payouts. It's like the cost curve did not really get bent at all.

  • MarioLanza||

    The chief actuary for Medicare/Medicaid has said that Obamacare does bend the cost curve...in an upward direction.

  • ||

    A secondary effect of the MLR is that it decreases pressure on medical providers pricing. If you're having a good year, you want to use up the 80% of the premium, so you don't have to issue any rebate checks, which will cut into profit as well. You want to get the biggest profit possible. So you might not worry so much about what the hospitals are charging or what tests they are doing.

  • ||

    And for many people, in the years after the law, premiums aren't just going to up up a little. They're going to rise a lot.

    Well younger and healthier people are definitely going to get hit with a huge price shock due to the law's community rating provisions.

  • robc||

    Nothing quite like transfer payments from the poor to the rich.

  • Hopfiend||

    Yea. According to Gillespie, that is a contributor to inequality.

  • Raven Nation||

    Yeah, and while the whole thing sucks, I can't help feeling a certain degree of schadenfraude since so many of those "younger & healthier people" voted for the guy who made this happen.

  • mad libertarian guy||

    I can't wait to hear the people who voted for Obama and supported Obamacare to ask "What the fuck happened?" like they have when they saw their first paychecks this year.

  • Raven Nation||

    Well, the basic responses will be (i) the rich still aren't paying their fair share; (ii) private insurance companies are screwing us, we need single payer.

  • The Late P Brooks||

    So is the problem that ObamaCare did not grant new powers to reject rate increases? California health insurance commissioner Dave Jones offers an explicit endorsement of this theory, saying that the lack of new authority to reject health insurance rate increases is a “huge loophole in the Affordable Care Act.”

    *gnashes teeth, throws computer through window*

  • juris imprudent||

    No, no, you should be throwing the commissar out the window.

  • ||

    Well, we didn't know that until we passed it. Oh well.

  • Ron||

    I received a rebate check last year for $278.00.
    Luckily so far this year my insurance has gone up by only $9 a month not enough to cover the rebate. The irritating part is that that rebate is considered an income and I will be taxed on it since I'm self employed.

  • Red Rocks Rockin||

    How the fuck are they taxing you on money you already paid?

  • Cdr Lytton||

    Probably because he deducted the original premiums on his taxes. See the question for "Charlie" here:

    http://1.usa.gov/UH2ct0

  • Libertarius||

    If we write enough laws, we can rewrite reality, where free lunches will flow from the Big Rock Candy Mountain!

    /lefties

  • Hopfiend||

    Anything is possible when you don't know what the hell you're talking about.

  • LibertariansRLiars||

    You mean like Mission Accomplished and WMD and peace love and democracy from bombs and guns? If you people ever want to win, you need to focus on your own bs first and not everyone elses because you have a rather large credibility problem. Win any elections lately? NO.

  • mad libertarian guy||

    You mean like Mission Accomplished and WMD and peace love and democracy from bombs and guns?

    Yeah, because libertarians supported those things.

    If you people ever want to win . . .

    The fuck are you calling "you people?"

  • Jim in Denver||

    Libertarians are not Republicans... all your snark was Republican related. Please redirect your browser to Fox news please. Idiot.

  • LibertariansRLiars||

    For being libertarians you sure are good at socializing your behavior onto everyone else, thus making you the very freeloading parasites you claim to despise. Since the president isn't an insurance company, not really sure how he would be the cause. Hilarious really because of the irony. Losers are as loser do. How many libertarian candidates have won elections? ZERO.

  • Hopfiend||

    Hahahahahahahahahahahahahahahahaha,

    It's funny cuz you stoopid

  • LibertariansRLiars||

    Thanks for illustrating why you don't win elections.

  • Jim in Denver||

    That would be primarily because we do not pander to the lowest common denominator. Thanks for the reminder, idiot.

  • Hopfiend||

    Said with more grace and dignity than I was able to muster.

  • Hopfiend||

    Me calling you stoopid is why libertarians don't win elections? More like stoopid people like you voting team blue against your own interests. People who have zero understanding of economics and how the government strokes you with one hand while in the other they hold the phallus to sodomize you

  • Unindicted Co-conspirator||

    Hey, asshole? If you don't want to pay for the costs of uncompensated care, then don't. I will gladly, gleefully sign onto any Democratic-led effort to repeal the provisions of HIPAA that prohibit healthcare providers from refusing to treat uninsureds who can't otherwise pay.

    Until then, though? Shut your whore mouth. People who demand that we socialize the costs of uncompensated care don't get to turn around and bitch about the expense.

  • Hopfiend||

    I am not sure he was making(attempting to make) that coherent a point. I am sure he got lost on his way to MSNBC.com anyway.

  • Brandon||

    Ok, can someone let me know when Mary gets banned again? Until then, I'm off to gambol across forest and plain.

  • GregMax||

    I doubt this law was ever really intended to keep individual's insurance rates low, or make health care more affordable. It gives insurance coverage to millions at the expense of tax payers and other insurance purchasers.
    The people of this country deserve the government they've voted for.

  • NorEastern||

    Well, given that the insurance companies will not have to spend much money until 2014, I would think that it is another case of a near monopoly bleeding the customers. In New York any rate increases are reviewed by the State. New York granted the insurers a 9% maximum bump in premiums. States that do not regulate health insurance rates are getting royally scr3w3d. Corporations do not consider the public's best interests. They just want to grab every penny of profit they can. But if I was a CEO of a health insurance company I would be trying to milk every penny I could out of the system.

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