The driving force behind rising exchange plan premiums

It's no secret that premiums for Affordable Care Act individual health plans are rising in 2016--and there is one primary explanation for why that's happening, according to Vox.

Simply put, insurers greatly underestimated the amount of healthcare services their ACA plan customers would use, leading many to pay out far more in medical bills than they collected in premiums in 2014. That led many insurers to lose money on the exchanges, including UnitedHealth Group, which has warned it may pull out of the marketplace entirely by 2017.

The underestimation of utilization likely happened because insurers didn't have enough information about who would sign up for exchange plans, Vox notes, though it also could have been a strategy to lure customers with low prices.

Either way, the result has been double-digit rate hikes on the part of some insurers in an attempt to have future premiums cover their anticipated claims. For example, Blue Cross Blue Shield Tennessee paid out $645 million in claims for 2014 while taking in only $517 million in premiums, leading it to hike its exchange plan rates 38 percent next year, according to the article. On average, premiums for the ACA's "benchmark" silver plan will rise 7.5 percent in 2016, the government has said.

These rate hikes may end up deterring enrollment to some extent, experts told Vox. CEO Kevin Counihan, however, noted that a large share of those who have signed up for coverage during the current open enrollment period were previously uninsured, a positive sign that the exchanges are finally attracting the "higher-hanging fruit" of consumers who had avoided getting covered for the past two years.

The Department of Health and Human Services hopes to have 10 million people enrolled in ACA plans by the end of the year, encouraging enrollment in part by putting a greater emphasis on the increased penalty for remaining uninsured. Still, a recent analysis shows that for many Americans it still may be less expensive to pay the penalty than to sign up for the least expensive ACA plan.

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