Insurance companies are not known for their optimism, especially when it comes to health. But those that were too optimistic were caught off guard when Obamacare was enacted—the companies assumed their new clients would be healthier than they turned out to be, and set their premiums too low.
Some insurance companies suffered significant losses, but it is the consumer who will feel the pain as adjustments are made.
The cost of the Affordable Care Act (ACA) will increase quicker in 2017 than it has in previous years. Premiums for the lowest- and second-lowest-cost silver plans are increasing by double-digit percentages next year, a report by Kaiser Family Foundation revealed.
“Marketplace premiums under the Affordable Care Act, already a subject of perennial interest, have gained even more attention amid unfavorable financial results from some insurers, as well as initial reports of steep premium increases requested for 2017,” stated the report.
Based on insurer rate requests, the cost of the lowest-cost silver plan in 14 major cities will increase by an average of 11 percent in 2017.
This compares to an average of a 5 percent increase per year between 2014 and 2017. As for the second-lowest-cost silver plan, the average premium increase will be 10 percent in 2017, compared to a 5 percent increase in 2016.
The changes in premiums for both silver plans vary geographically, ranging from a drop of more than 10 percent in Providence, Rhode Island, to an increase of around 20 percent in Portland, Oregon.
The increase in premiums is mainly driven by poor financial results from insurers.
“Some insurers assumed that enrollees would be healthier than they turned out to be and set their premiums too low, leading in some cases to significant financial losses for ACA-compliant plans and an expectation that premiums could rise faster in 2017,” stated Kaiser in another report published in May.
The report also found some states will have fewer insurers participating in 2017 compared to the previous year. In the 14 marketplaces included in the analysis, half will see a drop in the number of insurers, mainly due to the withdrawal of UnitedHealth. Oregon and Washington will experience the largest drops in insurer participation.
The two lowest-cost silver plans are significant because they are the most common plan choices in the marketplace, and the second-lowest-cost plan is the benchmark used to calculate government premium subsidies.
Premiums for 2017 are still preliminary and could be raised or lowered. State and federal regulators will be reviewing the proposed rates over the next few months. The next open enrollment period will begin on Nov. 1.
“In some cases approved rates will likely end up being lower than proposed rates,” stated Kaiser in its report.
Because of losses on Obamacare plans sold by a number of insurers, “I would expect that states would push back less on rate increases this year,” Cynthia Cox, one of the authors of the report, told CNBC.
The Kaiser report said the insurance hikes have raised concerns over the stability of the ACA’s marketplaces.
“Experience has shown that many enrollees are willing to switch plans to avoid a premium increase, even though this might mean changing insurers and potentially doctors as well.”
Kaiser Family Foundation, a nonprofit that focuses on national health issues, prepared its report by examining major cities in 13 states plus the District of Columbia, only where complete data on rates is publicly available. More data will become available later this year.