Over the holiday weekend, The New York Times published a lengthy piece confirming and adding to what has been increasingly clear for months: All over the nation, health plans being offered through Obamacare's exchanges are requesting sizable rate hikes. In particular, popular plans that had attracted large customer bases by offering relatively low rates seem to be pushing for big increases next year, based on filings so far.
In Tennessee, the Times reports, BlueCross BlueShield has requested a 36 percent hike likely to affect more than 200,000 customers. In New Mexico, a plan with 33,000 members has requested a 51 percent hike. In Texas, one plan has asked for a 32 percent bump. In Oregon, the two largest plans in the state, which cover more than 220,000 people in total, have been approved for 25 and 33 percent hikes.
The Obama administration has responded by noting that so far most of these rate hike figures are just requests, and strongly hinting that regulators are likely to bargain them down.
Here's how the Times characterizes President Obama's response:
President Obama, on a trip to Tennessee this week, said that consumers should put pressure on state insurance regulators to scrutinize the proposed rate increases. If commissioners do their job and actively review rates, he said, "my expectation is that they'll come in significantly lower than what's being requested."
This is a plausible enough expectation on the surface. In Obamacare's initial years, regulators were able to negotiate insurers down in many instances. In at least some cases I expect that they will be able to do so once again.
Still, this year is notably different. That's because this is the first year in which insurers have a full year's worth of claims data to support their rate requests. And where these big rate hikes are concerned, what the claims data consistently shows is that the people on these plans are much sicker and much more expensive to cover than expected. A financial official for Arches Health Plan, which covers a quarter of the Obamacare exchange enrollees in Utah, tells the Times that expenses were 24 percent higher than expected when rates were set. Arches is requesting hikes averaging 45 percent next year.
This is the story all over. At one Obamacare plan in Minnesota, the Times reports, "the ratio of claims paid to premium revenues was more than 115 percent, and the company said it lost more than $135 million." A representative from Tennessee's BlueCross BlueShield plan says the plan lost $141 million "because we were not very accurate in predicting the utilization of health care." In Kansas, a Blue Cross and Blue Shield plan cover 28,000 people is requesting a 37 percent hike because the people who "purchased these individual plans since 2014 were older, in general, than expected and required more medical services than anticipated."
Regulators can attempt to bargain with insurers, but there's a limit to how much they can reasonably request when faced with claims that far exceed premiums. These sorts of losses are unsustainable over any length of time; insurers that operate at a loss for very long are likely to pull out of the market. For the plans to stay healthy, rates will eventually have to go up.
And that brings us to Oregon. As the Times reports, the state's insurance commissioner found that the cost to provide care in the state was about $830 million—$127 million more than the $703 million collected in premiums.
As a result, in two instances, the state's insurance commissioner "approved"—practically required—significantly larger hikes than what the insurers themselves requested. The state's struggling co-op plan requested a 5.3 percent increase and was approved for a 19.9 percent hike. Health Net asked for a 9 percent increase, but was approved for an average 34.8 percent bump.
The state's insurance regulator didn't bargain these insurers down. The regulator negotiated them up—warning sensibly that "inadequate rates could result in companies going out of business in the middle of the plan year, or being unable to pay claims." President Obama may have to adjust his expectations accordingly.