Obamacare Premiums Likely to Skyrocket Next Year

Image: Obamacare Premiums Likely to Skyrocket Next Year Kathleen Sebelius testifies before the House Appropriations Labor, Health and Human Services, Education and Related Agencies Subcommittee on March 13.

Wednesday, 19 Mar 2014 10:02 AM

By Melanie Batley

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Health industry officials say Obamacare premiums will likely double, and in some cases triple, in certain parts of the country next year, and announcements of rate hikes could come within months, potentially adding to the pressure on Democrats going into the midterm elections.

The botched rollout of the federal healthcare program, including its numerous delays and changes, is one of the chief reasons for impending hikes, officials told The Hill, as is the impact on insurers of Obamacare's new fees and regulatory restrictions.

"Everyone knows that the way the exchange has rolled out … is going to lead to higher costs," a senior insurance executive who requested anonymity told The Hill.

Another official told The Hill, "All these major delays on very significant portions of the law are going to change what it's going to cost."

But the most significant cause of rate increases, officials say, is related to the administration's erroneous projections about the number of young healthy consumers who would enroll.

"Demographics matter a lot because they will help determine whether the health insurance market goes into a death spiral (or requires hefty federal subsidies to keep it from doing so),"  Megan McArdle writes in her column for Bloomberg View.

"Young healthy people, and a lot of them, are needed to keep the market stable and premiums low. As we head into the final few weeks, we have a pretty good idea of how many young healthy people there will be, and the answer is: a whole lot fewer than the healthcare wonks were expecting."

The Obama administration estimated that roughly 40 percent of Obamacare's enrollees would need to be between the ages of 18 and 35 to keep Obamacare financially solvent and premiums would cover costs.

As of March 1, just 25 percent of those enrolled were young people. McArdle cites figures from the Kaiser Family Foundation which indicate that if enrollment remains at that level by the end of March, costs would be 2.45 percent more than premiums. Additionally, even if youth enrollment increased to 33 percent, costs would still be greater than premiums at 1.1 percent.

The Obama administration has insisted that the rate of enrollment for the young would accelerate in the final weeks, and has orchestrated a major push to sign up young people before the March 31 deadline.

But McArdle points out that even in the unlikely event that "enrollment is truly massive," it still won't be enough.

Insurance officials emphasized that rate hikes will vary significantly depending on the region and the carrier, but areas of the country with older, less healthy populations are likely to be affected most.

The industry warnings come less than a week after Health and Human Services Secretary Kathleen Sebelius admitted to congressional lawmakers that rates would increase in 2015. She emphasized, however, that growth would be slower than in the past, The Wall Street Journal reported.

"The increases are far less significant than what they were prior to the Affordable Care Act," Sebelius said during testimony before the House Ways and Means Committee.

One official said he believes Sebelius' comments were a "pre-emptive strike" and an attempt to "soften up the American public" to the likelihood of premium increases.

"My gut tells me that, for some people, these increases will be significant," Bill Hoagland, a former executive at Cigna and senior vice president at the Bipartisan Policy Center, told The Hill. "That was her way of getting out in front of it."

Other health industry insiders say it's too soon to assess the accuracy of Sebelius' predictions.

"Health premiums increase every year, so the odds are very good that they will increase next year, as well. None of that is news. The question is whether it will be a lot or a little. That depends in part on how big the insurers think the exchanges will be," David Cutler, one of Obamacare's architects, told The Hill.

Jon Gruber, who also helped design the new healthcare program, said, "The bottom line is that we just don't know. Premiums were rising 7 to 10 percent a year before the law. So the question is whether we will see a continuation of that sort of single-digit increase, as Sebelius said, or whether it will be larger."

The picture is expected to become clearer as insurers begin the process this spring of filing their rate proposals with state insurance commissioners.

It is possible that some insurers will continue to hold rates low to remain competitive, though some initially underpriced their policies to attract customers in the first year, expecting to raise rates in the second year, according to The Hill.

If the predictions of major rate increases come to fruition, the political fallout for the Democrats — who will already be under intense pressure in the midterm elections due to the troubled healthcare law — could be even more significant.

Rate hikes would also likely undermine Obamacare enrollment efforts in 2015, The Hill reported.


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