Early this week Washington and Virginia made health insurers’ proposed premium rates for 2015 available to the public. With another big filing deadline May 15, other states will soon follow. For many commentators, these rates will serve as a referendum on the success or failure of the Affordable Care Act. While no one expects rates to go down except in a few isolated circumstances, there is likely to be a wide range of rate increases, from small percentage increases to large ones.
I frequently get asked to make predictions about 2015 rate filings – how high do I think rate increases will be? But such predictions are like nailing jello to the wall. Why? Two reasons: First, because there are so many different factors underlying our health insurance premium rates. And second, because health insurance is an inherently local product that reflects local market conditions.
Two new resources from actuarial experts help drive these points home. The first is an excellent webinar hosted by the Robert Wood Johnson Foundation’s State Network and conducted by a health actuary from the Wakely Consulting Group. The webinar provides an overview of the different factors driving 2015 rates. Notably, some factors will drive rates up, some will drive rates down, and some factors could go either way. For example, the phase-down of the ACA’s reinsurance program will likely drive 2015 rates up. But insurers can also expect a lessening of the pent up demand that many saw in 2014, and that should drive rates down. Other components will change from insurer to insurer and from market to market. Some insurers will make network design changes; some will make changes to benefits and cost-sharing. Narrowing networks will help keep rates lower, but some insurers – perhaps in response to pressure from state or federal officials – may expand their networks, which could drive rates higher.
The second resource is a helpful explainer of 2015 premium rate drivers from the American Academy of Actuaries (AAA). The brief provides an overview of the factors underlying rate increases (i.e., composition of the risk pool, the continually rising cost of medical care, reductions in federal reinsurance funds, and changes in federal and state laws). Importantly, the brief reminds us that insurers are, for the most part, just as in the dark in setting 2015 rates as they were in setting 2014 rates. But insurers that assumed a healthier risk pool for 2014 than they actually got will likely need to raise rates, while insurers who made more accurate projections will be able to keep rates more stable. Either way, their assessment of how healthy or sick their risk pool is will largely be guesswork, because this early in the year they only have limited claims data on which to rely. So we’re likely to see considerable variation from insurer to insurer.
Over the next few weeks and months, 2015 rate proposals will trickle out state by state and insurer by insurer. We’re likely to continue to see requests for increases big and small, some insurers will propose that their rates stay the same, and some will actually propose decreases (like Molina’s in Washington). Some rate change requests will be a direct result of the ACA; some will be made for reasons entirely independent of the law. None of this feeds the media’s – or the public’s – desire for simple, black and white predictions about rates. But I can say one thing for sure.
Before the ACA was enacted, risk pooling was done product-by-product within each insurer, and often on an unlevel playing field from market to market. The ACA’s risk pooling and risk mitigation policies attempt to move us toward a larger, more balanced risk pool – and that will mean more stable, predictable rates over the long term.