Sensational reports of health insurance premium hikes misleading, incomplete

Guest post from Joel White, president of the Council for Affordable Health Coverage

At the end of July, CEO Kevin Counihan sent a letter to insurance commissioners, urging them to consider some trends in reviewing and approving rates for the coming year.

In the letter, he argues that risk pools are getting--and will get--healthier, medical cost trend is moderate, and the Center for Medicare & Medicaid Services (CMS) is stepping up by paying 100 percent of carrier reinsurance costs and risk corridor payments. The marketplace CEO also stressed that "public hearings are helpful in rate reduction."

Bottom line: Take on the insurers by approving lower rates; otherwise we will have to deal with the political fallout in a politically charged election year. 

Whether Counihan's ploy will work remains to be seen. It helps to look at each point he makes and what it might mean down the road.

Over the past month, the Obama administration has posted the initial 2016 plan rate filings for the Affordable Care Act insurance exchanges, searchable by state and insurance carrier.

The initial filings posted only include plans that requested an increase of 10 percent or greater, as required under the ACA's rate review process. These filings have produced sensational headlines about rate increases of 20 percent, 30 percent, 40 percent and even 50 percent or more.

But they show an incomplete and misleading picture, as they do not include carriers that proposed either more modest rate increases or actual rate decreases. And while some states (New York and California, for example) are already announcing 2016 rates, the announcements are pre-rate review, the tool Counihan is championing and that is unavailable to the feds.

A closer analysis of the complete rate filings across 45 states indicates that on average, proposed premiums are 12 percent higher for 2016 exchange plans compared to 2015.

For silver exchange plans in particular, which currently capture 68 percent of enrollees, the average proposed premium increase is 14 percent for 2016 compared to 2015 (see Figure 1). In addition, within individual states and rating areas, certain carriers have proposed rate increases as high as 20 percent to 40 percent.

If exchange plan premiums for 2016 maintain this trajectory, the average overall premium increase of 12 percent will be more than double last year's average approved rate increase of 5.4 percent.

Higher medical trend?

But Counihan is not so sure. He claims trend is moderating, even accounting for the growth in prescription costs. The letter goes on to state that many issuers are reporting a decline in pent-up demand for services.

But the insurers we speak to are telling a different story. On average, trend is increasing, and risk pools are getting worse, not better.

A number of factors are driving the proposed premium increases. Our discussions with carriers and the latest data from the Altarium Institute, a consultancy, show some disturbing trends. National health spending in April 2015 was 6.2 percent higher than in April 2014. At $3.2 trillion, health spending now represents 18.2 percent of gross domestic product, a new all-time high.

And carriers report that health spending is accelerating more than expected over the past year, driven by increased consumer demand, provider prices and prescription drug costs.

In fact, recent U.S. Census Bureau data indicates that health spending was 7.3 percent higher in the first quarter of 2015 than in the first quarter of 2014. Carriers like Aetna are predicting an average 8 percent to 10 percent individual market trend increase, which is completely in line with the 12 percent average overall premium increase.

ACA policy changes

Counihan points out that CMS will reimburse carrier reinsurance claims at 100 percent for 2014 costs above the threshold, up from 80 percent. He also recommits to CMS' plan to fully reimburse for the risk corridor program--a program that has a budget cap, but which CMS argues it can exceed.

The fact is, the gradual reduction in the ACA's risk-sharing programs (the "three Rs"), particularly the reinsurance program, has started contributing to rising proposed premiums. These programs will wind down fully after 2016, likely contributing to further premium increases down the line. Carriers also continue to prepare for additional ACA benefit requirements and fees, like the expansion of benefit mandates to the small group market for employers with 50 to 100 employees starting in 2016.

Lower exchange enrollment

Counihan says recent claims data show healthier consumers. He makes the case that newer enrollees--like the almost 1 million who signed up during the recent special enrolment period--are healthier.

CMS reports that approximately 10.2 million effectuated enrollees were confirmed in the insurance exchanges as of March 31, 2015. This total is down from the 13 million enrollees projected to be enrolled in 2015--a prediction the Congressional Budget Office made in April  2014, when carriers were filing their 2015 premiums.

Bafflingly, the Department of Health and Human Services is touting the fact it expects 9 million to still be enrolled by the end of the year (people don't stay put, but change coverage throughout the year). The lower enrollment contributes to smaller, and potentially sicker, risk pools for carriers to balance health costs.

The simple fact is that those who are signing up are either heavily subsidized or expect to use care more heavily. In fact, the vast majority of those signing up are eligible for subsidies, while those ineligible are taking a pass.

In terms of enrollee health, an analysis by Truven found exchange enrollees had 39 percent more admissions, 64 percent more ER visits, more chronic conditions and used more specialty drugs.

Adding to the unsustainability of this trend, by one widely used measure--the Milliman Medical Index--total health costs for the typical family of four today is equal to 35 percent of the median family income and 170 percent of the full-time minimum wage. If recent trends continue, health care will consume 50 percent of median family earnings sometime in the next decade. Soon, Americans won't be able to afford coverage without a subsidy (reminds me of the housing crisis).

So what to do?

In fact, America's health affordability crisis is rooted in uncompetitive markets and the lack of flexibility caused by the ACA. This lack of flexibility is driving health costs, which are strongly correlated with premiums, ever higher. Recent news about health cost growth slowing down misses a fundamental point: Health costs are still increasing faster than the economy and family incomes, and taking premiums up with them.

Meanwhile, CMS projects that, during 2013-2022, national health expenditures will grow 42 percent faster as a share of GDP than they did between 2003 and 2012--a decade that saw significant erosion in non-health purchasing power.

Even under favorable assumptions, health costs are on track to consume more than half of the median family income sometime next decade. Much like gasoline prices, higher coverage costs reverberate throughout the economy, public budgets and the political process.

Commissioners and federal officials can politicize the rate filings. Fine, but what are insurers doing about it? 

The ones we speak to are leveraging ACA plan members data and shifting around their benefit designs, trying to improve high-value networks and get better provider payment discounts. Some are working on patient coaches, clinical pathways, medication adherence and disease management programs. A select few are tailoring new transparency efforts to create value for consumers and mitigate or drive down cost trend.

But at the end of the day, if rate review is just another political process ("public hearings are helpful") we may get rate approvals divorced from reality. In Nebraska and Iowa, for example, co-op plans failed and sent almost a million consumers scrambling for new coverage.

Insurers can and will leave markets. The only question is whether policymakers can agree to change the law before it implodes?