Insurance Rate Hikes Will Affect the Poor More

 

Big rate increases are coming for ObamaCare premiums. Worse yet, they will affect the people most who can least afford them.

Big ObamaCare Premium Increases

In an earlier post, Insurers Seek Skyrocket Rate Increases, I revealed the announced rate increase requests put forth by several large insurance companies including

  • Health Care Services Corporation in New Mexico (51.6% average increase)
  • BlueCross BlueShield of Tennessee (36.3% average increase)
  • CareFirst BlueCross BlueShield of Maryland (30.4% across the board increase)
  • Moda Health of Oregon (25% average increase).

 

Other rate increase requests are now available for scrutiny. These include:

  • Texas Blue Cross – 20% increase
  • Humana of Georgia – 14.8% – 19.44% increases
  • Wellmark Blue Cross of Iowa – 43% increase
  • Kansas insurance department rate increases are expected to rise by 38%
  • Highmark of Pennsylvania – 13.5% – 39.65% increases
  • Geisinger HMO of Pennsylvania – 40.6 – 58.4% increases

 

Robert Laszewski, insurance industry analyst, says there will be lots more big rate increases coming. He notes it is important to understand that none of these insurers knew what increases their competitors were going to submit when they prepared their rate actions.

He warns, too, that when the new plans become public, expect to see bigger deductibles and co-pays as well for 2016. The average individual baseline Silver Plan deductible was almost $3,000 last year. As deductibles and co-pays rise, these insurance plans become de facto catastrophic plans only; in other words, most people will not be able to afford going to see the doctor for elective treatments and will use these policies only for catastrophic emergency hospitalizations.

What is driving up the cost of these insurance policies?

The cost of healthcare insurance is rising because ObamaCare requires all insurance policies to cover the “essential health benefits” as mandated by HHS Secretary Kathleen Sebelius. She included treatments such as mammograms, prostate exams, and obstetrical care for everyone, male or female. That means insurance policies must include the cost of unnecessary services for everyone.

Prices are also rising because insurance must be community rated, which means the same price for everyone using only three qualifiers; age, tobacco usage, and geographic location, rather than pre-existing medical conditions that more accurately predict future medical expenses. Premium prices can only use a 3:1 ratio – the most expensive plan is only three times the cheapest – rather than the usual 6:1 ration traditionally used by the insurance industry.

Then there’s the enrollment problem. Insurers normally need 75% enrollment in an insurance pool to reach satisfactory pricing stability. But low ObamaCare enrollment numbers are driving up the cost of insurance – which then drives up the pricing of future insurance policies. Laszewski explains:

“The number of people signing up for ObamaCare has varied considerably by state and is far below the level of penetration the industry typically needs to create a sustainable risk pool. If this pattern of one good year of state enrollment followed by a flat enrollment continues, it is hard to see how ObamaCare can reach a sustainable enrollment level.”

Lastly, the “3Rs” of risk assessment, reinsurance, and risk corridors will be expiring at the end of 2016. But insurance companies are already losing confidence in the Obama administration to cover their losses. Laszewski again,
“Many, but not all, carriers are worried that the Obama administration is not going to follow through on tis promises to pay off most of a carriers’ losses through the “3Rs” reinsurance program and decided not to wait another year before hiking the rates.” 

The Poor Will Suffer More

On top of this bad news comes the revelation that those with lower incomes will disproportionately suffer the burden of rate increases.

Seth Chandler, law professor at The University of Houston, has done an exhaustive analysis of the impact of premium increases on those receiving subsidies on the insurance exchanges. His research shows that the net increase in the cost of premiums is disproportionately higher for the poor than for those with moderate incomes. He explains,

“The poor will see drastic divergences between gross premium increases and net premium increases. Many, for example who have gross premium increases of say just 5% experience net premium increases of over 30%. . . Indeed, for the wealthier purchasers, net premium increases, more often than not, are smaller than gross premium increases.”

For example, if a low-income person’s responsibility for the cost of a policy is $1000 and the full price of the second lowest Silver Plan is $3,881.00, then the net premium is $1000 (the government pays $2,881). But this same person may choose a more expensive plan with better doctors and hospitals for $4,019.00. The tax credit remains $2,881 so the net premium is now $1,137.00

Suppose the next year the gross premium increases average about 6.33% but the second lowest premium on the Silver Plan is now $3,781.00. The same individual is responsible for the first $1000. The same policy upgrade has risen 10.28% to $4,432.00. If he wants to keep the same policy, he will have to pay the new net premium difference (after the tax credit of $2,781) of $1,650. Although the premium rose only 10.28% the net premium has gone up 45%! ($1650 – $1137 = $513; $513/$1137 = 45%)

The higher the income, the less the net effect on premium increases. The lower the income, the greater the net effect on premium increases.

(For a more detailed understanding of his research, see his blog post, Why Net Premium Increases will Often Be Even Larger Than You Think.)

The bottom line is clear: insurance premiums are rising fast – and those who can least afford them will be affected the most. This is no way to solve the problems of delivering healthcare to the poor. America needs a better system than ObamaCare.

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