Covered California: Rates will rise 13.2% next year

Covered California announced its rate increases for next year during a conference call Tuesday. The LA Times reports consumers can expect a double-digit increase in premiums next year, though of course customers receiving subsidies will be shielded from most of that:

Premiums for Californians’ Obamacare health coverage will rise by an average of 13.2% next year — more than three times the increase of the last two years and a jump that is bound to raise debate in an election year.

The big hikes come after two years in which California officials had bragged that the program had helped insure hundreds of thousands people in the state while keeping costs moderately in check.

Premiums in the insurance program called Covered California rose just 4% in 2016, after rising 4.2% in 2015 – the first year that exchange officials negotiated with insurers.

Kaiser Health News reports that Covered California’s Executive Director Peter Lee says the big jump is not about insurers reaping windfall profits:

“Under the new rules of the Affordable Care Act, insurers face strict limits on the amount of profit they can make selling health insurance,” Lee said. “We can be confident their rate increases are directly linked to health care costs, not administration or profit, which averaged 1.5 percent across our contracted plans.”

Covered California blames the sudden uptick on the cost of specialty drugs and the end of the risk corridors program. The reality is that the state has held rates at unrealistically low levels for the past two years, counting on built in buffer programs to shield insurers from the losses. In reality that hasn’t worked out so well. Insurers have been suffering big losses across the country and some are dropping out of the exchanges. With the temporary buffer programs ending, insurers need to bring in enough money through premiums to cover their costs next year.

The real question is whether some of the big insurers are only sticking it out because they want their mega-mergers to go through. Dropping out of the Obamacare exchanges would be a sure way to raise the hackles of regulators who have to approve the merger deals. But the calculus of what is in the company’s best interest could change dramatically if those deals fall apart. And there is a report today suggesting that may be about to happen. From the Wall Street Journal:

The Justice Department is close to challenging Anthem Inc.’s proposed acquisition of Cigna Corp. and Aetna Inc.’s planned combination with Humana Inc., according to people familiar with the matter, moves that would represent strong government pushback against consolidation in the health-insurance industry.

Antitrust lawsuits against the planned mergers would be the culmination of concerns the Justice Department has had about both deals from the outset…

One major concern that Justice Department officials have signaled is the effect on the national employer market, where the combination would shrink the number of competitors to three from four. Other worries included the merger’s affect on individual insurance plans—the coverage sold in the exchanges that are at the heart of the Obama administration’s signature health law—and the impact on health-care providers, where a combined insurer might have greater leverage in reimbursement negotiations.

If insurers keep losing money on the exchanges and it’s one of the reasons given for blowing up their proposed merger they could decide to cut their losses.

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