The Obama administration successfully signed up more than 8 million people in coverage through the Affordable Care Act’s health care exchanges during the first open enrollment period, but the law’s next big test will come later this summer, when insurers unveil health care premiums for the next coverage year. Will customers experience double digit increases? Could premium hikes push younger and healthier enrollees out of coverage all together, or will the market stabilize, as millions more obtain health care coverage?
Those questions can’t be answered until insurers unveil their premiums later this year and will vary across the country, but on Monday, a new analysis from The Robert Wood Johnson Foundation and the Urban Institute put some of the loudest hysteria to rest, finding that that “premium increases will be moderate (in line with underlying cost growth) rather than growing by double-digits.”
The brief’s author, health economist John Holahan, concedes that the rate of increase will depend on the state of the local health care market. Customers living in areas with few insurance options, for instance, may experience higher premium growth, while those residing in competitive areas could see smaller increases. Yet Holahan argues that on average, the market forces that created lower-than-expected premiums in 2014, “should be even stronger in 2015 with increased enrollment and a more stable risk pool.” Here are four reasons why:
1. “The underlying rate of growth in health care costs remained slow through 2012.” Lower than expected health care spending means that premiums — which traditionally keep up with underlining health care spending — could be lower. Even though preliminary evidence suggests that spending increased in the first quarter of 2014 from all-time-lows, health care prices are still continuing to grow at low rates.
2. “Enrollment in Marketplace plans should be substantially higher in 2015 than 2014.” The Congressional Budget Office anticipates that 7 million people will sign up for health care coverage in 2015 and experts predict that with all of the early website problems fixed, the 2015 open enrollment process will prove smoother. Health insurers also reported a rush of younger enrollees in the final days of the first open enrollment period and expect that since sicker enrollees signed up in the early months of open enrollment, healthier than average beneficiaries will join in 2015.
3. “Cost sharing in the silver tier, the plans most often selected, are high enough to dampen utilization.” Economists have long found that higher cost sharing and narrower networks of doctors and hospitals could keep premiums lower and decrease unnecessary health care spending.
4. “Increasing size and attractiveness of the nongroup markets could intensify the amount of competition from insurers.” The marketplaces appear to be attracting greater insurer participation for 2015. “In Washington state, four insurers plan to sell for the first time on the exchange next year, including UnitedHealth. In Virginia, a local health plan owned by a hospital and physicians in Lynchburg has proposed to join Aetna Inc., Kaiser Permanente and WellPoint Inc. in 2015. And in Indiana, the health exchange’s offerings may double to eight companies,” Bloomberg reported.
Initial premium filings from Washington state and Virginia appear to substantiate Holahan’s analysis. Insurers in Washington, for instance, posted an average proposed rate of 8.25 percent, the lowest increase in seven years. In Virginia, the rate requests similarly fall “shy of the much larger boosts some critics predicted.” Insurers in Indiana are posting increases below the double-digit mark.
“There is every evidence that the 2014 risk pool was more or less what insurers expected and that the 2015 risk pool will be better, so insurers have little reason to raise their premiums,” Timothy Jost, a law professor at Washington & Lee University, told ThinkProgress.
But Larry Levitt, the senior vice president at the Kaiser Family Foundation, points to factors that could drive up premiums, “such as the phasing down of the reinsurance pool and an increase in the assessment on health insurers.” Still, he notes that “85 percent of exchange enrollees are receiving premium subsidies and are mostly shielded from the effect of premium increases.”