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Why 2016 is the year for steep premium increases

Small risk pools, adjustments for "three Rs" prove costly for insurers

By now, it's no secret that health insurance rates for 2016 are set to increase substantially, most notably for insurers with the most enrollment and, therefore, the most member data. But the real question, as posed by Forbes guest columnist Robert Laszewski, is why the hikes are so steep so soon.

Laszewski said he had not expected "true" Affordable Care Act rates until mid-2016, when the 2017 prices are set to publish. By then, insurers would have a few years of experience dealing with claims data under the ACA, as well as the law's three Rs--risk corridors, reinsurance and risk adjustment.

Among the many proposed 2016 rate inceases Laszewski mentioned, two in particular stand out:

  • Texas Blue Cross. Last year, the insurer covered 730,833 enrollees, with premiums of  $2.1 billion and claims totaling $2.5 billion. After the 3 Rs adjustment, the insurer lost 17 percent to 20 percent of premiums in 2014--around $400 million. The insurer asked for a 20 percent rate increase for next year.
  • CareFirst Blue Cross of Maryland. The insurer saw claims per member jump to $391 in 2014 from $197 the year before. This year, CareFirst asked for a 34 percent rate increase on its PPO plan and a 26.7 percent rate increase for its HMO. 

In past years, rates have dropped substantially from the time they are proposed to the time they are set. However, the 2016 plan year is an entirely new ballgame, Laszewski said, as insurers have data from the previous year to back up their proposals when they submit to state insurance regulators.

Another potential reason for rate increases is enrollment figures that fall short of expectations. For example, CareFirst Blue Cross has an 80 percent market share on Maryland's ACA exchange, but only 30 percent of those eligible for subsidized coverage in Maryland have enrolled on the exchange. To create a sustainable risk pool, Laszewski said, insurers need enrollment levels to approach 75 percent.

Additionally, insurers are unaware of one another's proposed rate increases until they become public. As Laszewski asked, would rate be different if smaller insurers knew the rates their larger competitors set? Over time, however, insurers are likely to level out prices as they gain more access to data and consumer information, he said.

For more:
- here's the Forbes piece

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