A nasty fight has erupted between Obamacare supporters and opponents over the increase in insurance premiums for 2016, but many factors could lead to next year’s insurance costs.
Opponents pointed to insurers’ estimates of premium increases of at least 10 percent for Obamacare customers next year, with some running upward of 70 percent. Supporters counter that the overall increase will be more modest, and that all rates need to be approved by state regulators and must be finalized.
Case in point: In California, which just finalized its rates, Obamacare customers will face an average 4 percent bump next year.
But what goes into determining an insurance premium? A premium is developed based on projected medical claims and administrative costs for a pool of individuals or employer groups with insurance, according to the American Academy of Actuaries.
The actuary association estimated in a report Wednesday several factors that will drive changes in mainly the individual insurance market, which includes Obamacare enrollees.
1. Growth in healthcare costs
Namely the higher costs of going to the doctor and for prescription drugs. Healthcare spending grew by 5.5 percent in 2014, with coverage expansions from Obamacare and higher prescription costs a factor. That was well below the 4 percent growth increase in each year from 2008 to 2013.
However, a Wednesday report from two think tanks dispute that the higher spending was due to higher healthcare costs. The Urban Institute and Robert Wood Johnson Foundation attributed the rise solely to millions more customers using healthcare due to Obamacare’s insurance expansion.
The actuaries note that spending will continue to grow particularly as additional expensive specialty drugs come on the market to treat hepatitis C and cancer.
2. Reduction of reinsurance program funds
The reinsurance program pays plans in the individual insurance market when they have enrollees with high claims. That helps offset a portion of the costs of more expensive enrollees, the report said.
Funding for the program comes from contributions required by all healthcare plans, including employer group plans. But the funding is expected to decrease to $4 billion in 2016 compared with $6 billion this year and $10 billion in 2014. The program is set to end after 2016, the report said.
The actuary group estimates that the fund will help lower a plan’s health claims of up to $250,000 by about 4 to 6 percent, compared to 10 to 14 percent in 2014 and 6 to 11 percent in 2015.
3. The composition of the risk pool
A healthy insurance pool needs a good mix of sick and healthy people to remain stable. Even though insurers will have greater certainty in 2016 of who enrolls in Obamacare thanks to data from 2014 and 2015 enrollees, there is still uncertainty in the risk pools, the report said.
Enrollees in 2014 were enrolled for less than a full year due to the botched website rollout and an extended open enrollment period.
Insurers also have to determine whether enrollees will spend the same amount of money on healthcare in 2016 as they did in 2014. Someone who got insurance for the first time in a while may be more inclined to spend more on healthcare at first and then level off over time, the report said.
4. Market forces
Premiums are much easier to compare now than before Obamacare due to new transparency requirements.
In previous years some insurers “lowered their premiums after they could see the competitors’ premiums” to get an edge, the report said.
But this method has some drawbacks, namely that underpricing one year could drive higher premium increases in future years. The low premiums might seem nice at first, but insurers would have to jack them up in later years to recoup any losses from claims and expenses.
Another factor could be increased negotiating power among providers that could lead to pressure on premium increases, the report said. Many doctor practices and hospitals have been consolidating in recent years to gain such power.
