Marilyn Tavenner, who used to run the Centers for Medicare and Medicaid Services (CMS) that oversees Obamacare, is now the president of America’s Health Insurance Plans (AHIP), an insurance industry lobbying group. Tavenner gave an interview to Morning Consult in which she predicts larger premium increases are coming to Obamacare exchanges next year:
“I’ve been asked, what are the premiums going to look like? I don’t know, because it also varies by state, market, even within markets. But I think the overall trend is going to be higher than we saw previous years. That’s my big prediction,” she said in a recent interview with Morning Consult.
Tavenner says the usual medical cost trend plus higher drug prices will play a role in raising rates, but the real difference this year is that 2 of the 3 programs designed to smooth the Obamacare transition are ending:
In 2017, two of the three “risk mitigation” programs established under Obamacare will end. They are reinsurance, or payments to plans that enroll higher-cost individuals, and risk corridors that set an allowable range for losses and gains. The third “R,” risk adjustment that distributes funds from plans with low-risk enrollees to plans with higher risk, will continue.
“Remember both risk corridor – i.e. there’s no cash there, that we’re aware of. So there won’t be any predictability after last year that there’ll be cash this year. Reinsurance is going away, this is the last year of the reinsurance,” Tavenner said. “So they’re going to have to price over, around, or at least take into account what’s going on with risk corridors and reinsurance. So that’s a trend in the wrong direction.”
In other words, insurers are going to be forced to stand on their own. Given that the big insurers like Aetna and United were already losing money on the exchanges there is no buffer in the numbers. The result will be big increases this year and probably next year as well.
Insurance industry expert Bob Laszewski says it’s possible the market will eventually stabilize (premiums will rise high enough to cover expenses) but suggests the real question is not whether the insurers will break even but what kind of insurance people will be getting when that finally happens:
About 40% of the off and on exchange market does not receive a subsidy and has to pay the full price. An insurance broker recently emailed me that one of her clients looked at these prices and responded, “That is more than my house payment!”
Subsidized people do get hurt when these prices increase. Unless they move to at least the second-lowest cost Silver plan, they bear the full brunt of the increase. Imagine a consumer covered by the wide network Blue Cross plan that has to move to a cheaper narrow network plan with a bigger deductible in order to avoid the increase. As these costs rise, the subsidized consumers just continue to get squeezed into narrower network and higher deductible plans in order to take full advantage of the subsidy.
Laszewski concludes, “Is Obamacare about the market and the insurance companies or is it about the people that have no choice but to buy their health insurance through the new heath law?” In other words, just because the program may eventually stabilize doesn’t mean the balance point will represent an appealing bargain for consumers.