The most visible piece of the federal reform law was the individual insurance exchanges, where people who didn’t otherwise have health care coverage, and now were mandated to get it, were supposed to be able to buy “affordable” and often subsidized plans. In recent weeks, we have seen a number of reports that 2017 premiums would be much higher. Partly this has been tied to the very public announcements by a number of major insurers that they would abandon the exchanges in a number of geographic markets. So not surprisingly, one of the reform law’s chief apologists, the Kaiser foundation, issues a report saying just hold on, things may not be that bad. (KFF Article) The KFF actually does very good work, issuing a number of very detailed and useful reports on a variety of topics, but every now and then their political bias tends to show up.
This report points out a variety of factors that will influence insurer premium decisions. Some are unique to this year, for example the reform law’s health plan tax of 3% of premiums (is there any organization or person that didn’t get taxed by that law) will be suspended for 2017, which should lower rates. On the other hand, the federal reinsurance gimmick used to buy health plan support for the law will expire. The loss of competition in many markets, especially rural ones, won’t help. The coop plans have almost all gone tube city. New entrants are likely to be deterred by the negative experience of most plans to date. And that negative experience is the most important factor. Costs to serve the exchange population have been much higher than most insurers estimated, leading to large losses. Partly this was poor actuarial work and rate-setting judgment by the plans and partly poor design of the exchange markets. The “mandate” is extremely leaky. Healthy people can’t possibly see much benefit in laying out a lot of money for health insurance and then can avoid the penalty if they want to. People who need a lot of health care are likely to sign up, but to minimize costs they use special enrollment periods to come in and out of coverage when they need services. The federal government has tried to minimize this, but at the same time is limiting the plans’ ability to use narrow networks and other tactics to control costs. And that is the real problem, the underlying trend on medical costs for the country has begun to grow more rapidly. For most states, the exchanges seem to be on an unhealthy downward spiral.