5 forces driving health insurance premium changes in 2017

Health insurance, pen and stethoscope

As health insurers continue to file their 2017 rate requests for the individual market, general consensus among industry experts indicates that premiums are likely to rise next year.

The reasons are myriad and complex, but two recent reports--from the American Academy of Actuaries and from America's Health Insurance Plans (AHIP)--help shed some light on the major industry forces driving the trend, as well as mitigating it:

Growth in medical and pharmaceutical costs. In 2017, the overall medical trend is expected to rise slightly faster than in previous years but remain low relative to historical levels, according to the actuaries' report. The AHIP report goes further, pointing out that the "rapid rise in prescription drug spending" is a major contributor to medical trend, and thus, premium increases.

Evolution of the ACA's "three Rs." Echoing a recent Kaiser Family Foundation brief, both the AHIP report and the actuaries' report point out that the phase-out of the federal reinsurance program is likely to drive up premiums, as it has previously helped offset high-cost claims for insurers. The risk corridors program is also ending in 2017, and while the risk adjustment program will remain, federal regulators are considering making some changes to it.

Changes in risk pool composition. It is unclear, the actuaries' report says, how the enrollee risk profile has changed as a result of increased marketplace participation over time--though will insurers have more information about enrollees next year than they did in years past. In addition, AHIP notes, the migration of enrollees from transitional policies could improve the health status of the market as a whole.

Benefit and network design. The AHIP report points out that "targeted, high-value networks" help insurers cut costs and thus keep premiums down, while adding that some states' additions to the essential health benefits package "could further add to the cost of coverage." However, the actuaries' report says the elimination of broad-network plans could increase premiums for both the remaining broad-network plans and narrow-network plans alike.

Taxes and fees. The one-year delay of the health insurance provider fee, the actuaries say, will result in a reduction in expected premiums by about 1 to 3 percent. Other taxes and fees, though, AHIP says, will put upward pressure on premiums, including user fees for exchanges and the risk adjustment program and fees to fund the Patient Centered Outcomes and Research Institute.

To learn more:
- read the American Academy of Actuaries report (.pdf)

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