THE BLOG

Too Soon to Say on Insurance Rates for '15, But There Are Trends Worth Noting

07/01/2014 02:49 pm ET | Updated Aug 31, 2014

How much will health insurance premiums go up next year? The short answer: We won't know for several months.

We have some general information, but we don't have all the details. The Colorado Division of Insurance (DOI) recently released its preliminary assessment of proposed premiums for 2015. It says new rate filings indicate that "most premiums" will fall between a 10 percent decrease and a 10 percent increase when compared to 2014. Those rates are still under review and will not be approved until this September.

In the meantime, you'll hear talk and see headlines that will draw all kinds of conclusions about what policyholders in Colorado will be paying for insurance next year.

For example, a separate analysis of DOI's data goes into more detail and shows changes varying from a drop of 22 percent (New Health Ventures-Colorado Access) to an increase of 17.5 percent (Denver Health). Kaiser Permanente, which has the largest market share in the state and which had the highest number of enrollees from Colorado's insurance exchange, filed an average rate increase of 7 percent. Anthem and Colorado HealthOP, the new health insurance co-op, filed rate decreases of 5.1 and 9.6 percent, respectively.

But even those estimates aren't especially helpful for most consumers. First of all, they're averages. Premium rates for individual plans, even within a single insurance company, will vary significantly based on level of coverage, co-pays and deductibles. Rates aren't the whole story, either. Lower premium plans inevitably mean higher out-of-pocket costs as well as the possibility of having to find a new doctor if provider networks were restructured in order to keep rates competitive.

Second, average increases or decreases are based on changes from 2014 rates. In setting rates for this year, insurance companies relied on "best estimates" to deal with the requirements and the new landscape created by the Affordable Care Act. Some carriers pursued an aggressive pricing strategy (substitute the word "cheaper") in order to acquire market share. Others were more cautious, and their rates were higher in order to cover unanticipated risks. Now that companies have more information, they will be fine-tuning.

That means 2015 rate filings might show large percentage increases for carriers that pursued an aggressive strategy in 2014. You might see lower increases or even decreases for those carriers that had a higher-than-average rate this year.

Having provided all of those qualifiers, we think it's safe to say that general trends are positive, at least from a policy point of view. The initial rate filings don't show wild swings or big double-digit increases, and they show a healthy level of competition between carriers.

For example, policyholders in western Colorado will have a wider range of options because Colorado HealthOP and Kaiser Permanente will be offering coverage in that part of the state. On the negative side, out-of-pocket costs will certainly be higher for cheaper plans, and provider networks may have changed in order to keep those rates more competitive. Those who felt they could get by on limited-benefit plans will now have to pay more for the comprehensive coverage required by the ACA.

Other states
Across the country, many states are showing increased premiums, based on preliminary figures. On the high end is Connecticut, with an average increase of 16 percent; Rhode Island is at the low end, with a bump of 2.5 percent. The major exception is Oregon, which is seeing an average rate drop of 1.4 percent. Based on this limited number of states, premium growth seems to be relatively modest and appears to be lower on average than pre-ACA levels. Some of the more dire predictions don't appear to be coming true.

Competition
The results are mixed in assessing competition among insurance carriers. California and New York, the second- and third-largest states for population, have become "noticeably more competitive" in terms of the number carriers in the individual market. Connecticut (where two major insurers did not participate in the state's health insurance exchange) and Washington appear to have a less competitive individual market than in 2014.

Uninsured Americans
A positive development is the drop in the number of uninsured Americans - to 13.4 percent from a high of 18 percent last year. According to the Congressional Budget Office, the number of uninsured Americans is projected to drop from 54 million before the ACA to 42 million in 2014. In Minnesota alone, the number of uninsured dropped by more 180,000 residents, a 40 percent reduction. New data also shows that more than half of all newly insured Americans obtained coverage through the new health insurance exchanges.

Health status
The newly insured population is proportionately less healthy than the average adult population. However, it stands to reason that those who needed health insurance the most would be the first to enroll. Obviously, the less healthy a new policyholder is, the more claims they are likely to file. That will raise costs for the insurance company and those costs will be passed on in the form of higher premiums. But that effect may be temporary.

Both the Congressional Budget Office and the Joint Commission on Taxation project that exchange enrollees in the future will be healthier than this initial group. They come to that conclusion, in part, because of the higher penalties imposed by the ACA's individual mandate. Both groups believe those who will respond to the mandate are healthier, which will place downward pressure on premiums in the future.

Health care spending
We also have had some very good news on the health care spending front. The rate of Medicare and Medicaid spending growth has slowed over the last five years, reducing some of the pressure on federal and state budgets. From the first quarter of 2013 to the first quarter of 2014, health care spending increased by about 2.9 percent. According to Peter Orzag, the former director of the Congressional Budget Office, after you take out inflation, "spending growth was basically zero." By anybody's estimate, that's a big deal.

Orzag suggests that three factors are contributing to the slowdown: 1) the economic downturn, 2) greater consumer choice and higher cost sharing (which drives down health care utilization), and 3) system and payment efficiencies in the health industry. Whether this trend continues is subject to debate, but in the near term, it is good news.

So, a reminder: Be careful about jumping to conclusions on premiums based on incomplete data. Supporters of health care reform will use good results to say everything is working great and those who oppose reform will use bad results to claim that everything is a disaster.

However, it's fair to say that rates are not fluctuating wildly, which would have been a very bad sign. Average rate increases in 2015 may be fairly modest when compared to rate increases in the past. Competition in some states is improving, although in some states it's not. More people have health coverage than ever before, and that population is likely to be healthier in the future. And for the time being at least, health care spending is down. For a system this huge and this complex, all of that may be grounds for cautious optimism.