Re-posted with the permission of Columbia Journalism Review where this article originally appeared on May 13, 2013
Rate hikes just keep coming.
The latest we've heard about come from Blue Cross Blue Shield in North Carolina, which just warned 125,000 customers who bought individual policies to brace themselves for unusually large increases. CareFirst Blue Cross Blue Shield of Maryland announced hikes averaging 25 percent for its individual policies and about 15 percent for small businesses. Medico, based in Minnesota, said it would increase rates an average of 13 percent for some 5,000 people covered through small employers who renew their policies this summer. Ditto in other states, where carriers already raised rates for individuals and small employers. Insurance insiders say more will come.
With these increases come lots of questions from the public, questions that journalists will be asked to address. In Rhode Island, Robert Cagnetta, a small business owner and a member of the Health Insurance Advisory Council for the state's health insurance commissioner, wrote an op ed for the Providence Journal challenging recent rate increases--15 percent for small groups; 18 percent for individuals--announced by Blue Cross & Blue Shield of Rhode Island. "We're asked to pay blindly, and more and more every year," he wrote. "We need transparency now."
Most Americans get their insurance from their employer, or the military, or Medicare. President Obama's Affordable Care Act primarily affects those who buy their insurance on their own--currently about 15 million people. In that group, some premiums will indeed be pushed higher, while others will be pushed lower. Some people will get subsidies to help them pay their premiums, while others will not.
Will insurance be affordable? It's a question reporters will be asked to address, and one that can only be fully answered family by family, budget by budget. But journalists can help. The best thing they can do now is work to understand how health insurance is priced.
But insurance pricing is tricky. What follows is a brief primer on some of the nuts and bolts of rates and premiums, which, not so incidently are key to the success or failure of Obamacare.
What's pushing up premiums
The insurance industry's standard line is that the reason premiums are rising is because the underlying cost of care continues to rise. Companies maintain they are simply passing along those continuing increases in medical costs, plus a slice for profits and expenses (which include high salaries for CEOs). At least that's what they're telling customers.
But how does that rationale square with the news that medical costs have moderated, as the White House points out? A few weeks ago the White House deputy press secretary, quoting the chairman of he Council of Economic Advisers, said that health expenditure data shows the lowest rate of growth since reporting began in 1960. What gives?
Part of the answer: Even though healthcare inflation has slowed a bit, that doesn't mean it has stopped, or that insurers don't factor medical price increases into their premiums. They do. While healthcare inflation--called "medical trend" in insurance jargon--has moderated relative to what it has been in the past, that doesn't mean the price of care has not gone up. It's running between 4 and 7 percent a year, and insurers account for it in the premiums they charge. (Sometimes, though, carriers now add on slightly more than the current medical trend, particularly for high-deductible plans. The reason: while high deductibles remain fixed, the price of care is not. In 2014 all plans will be subject to these add-ons.)
Higher medical costs don't explain all the premium hikes, though. And yes, Obamacare is part of the puzzle. The law may indeed cause companies to boost the price of coverage--and "fairly substantially in most states, before a premium subsidy is applied," says Jim O'Connor, an actuary with the Milliman firm.
But if the main provisions of Obamacare have yet to take effect, how can it be the reason for this year's increases?
There are several possibilities. Carriers may well be trying to get a jump for next year, when major provisions of the law take effect. Or, as some industry insiders say, companies may be playing catch-up because they've held the line on rate increases for the past few years in response to pressure from the Department of Health and Human Services, which pushed to keep rate increases under 10 percent after the health reform passed. And then there is always the possibility that insurance companies are using Obamacare as an excuse to do what they might have done anyway.
So how will Obamacare affect premiums?
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