The health insurance premiums for 2016 will differ from 2015 rates due to a number of reasons, but it's largely because insurers had limited information regarding the risk profile of the market as a whole at the time rates were filed.
Another factor affecting 2016 premiums, according to an issue brief from the American Academy of Actuaries, includes the reduction of reinsurance program funds. Here's a brief breakdown of the report's notable findings:
Projected risk pool vs. actual risk pool
When insurers proposed 2015 rates, they based their assumptions on limited data from the first open enrollment period. Now, with another year under their belts, insurers have more information regarding the enrollee population and how it compares to the profile for the market as a whole.
But when setting 2016 rates, insurers only had partial information from 2015. This is because many 2014 enrollees were enrolled for less than a full year due to administrative challenges associated with the online marketplaces. Additionally, when using 2014 numbers to project 2016's numbers, insurers may need to adjust claims data due to pent-up demand that caused a temporary increase in spending among those newly insured.
Lastly, for insurers that did not reap high enrollment numbers, their 2014 experience may not reflect future enrollment goals because smaller risk pools might be more subject to random fluctuations. Meaning, the risk profile for these insurers could change if they experience an uptick in enrollment.
Reduction of reinsurance program funds
In 2014, funding to the program was at $10 billion. However, that amount dropped to $6 billion in 2015 and will fall to $4 billion next year. So as the funding decreases, there is increased pressure to raise premiums.
For instance, next year, the program will reimburse insurers for 50 percent of an individual's health claims between $90,000 and $250,000, reducing net claims by about 4 percent to 6 percent. in 2014, the net reduction was 10 percent to 14 percent.
Moving forward, insurers will compare the impact of these reinsurance changes to those in their 2015 rates--the attachment point was later lowered from $70,000 to $45,000. Recently, the Department of Health and Human Services said it will fully cover a certain category of high-cost claims for the 2014 benefit year because it found that reinsurance contributions exceeded the total requests for reinsurance payments.
- here's the report (.pdf)