This week (late July 2014), one of the California insurance commissioners (there are two:: one for indemnity insurance, the other for managed care. One is elected, the other appointed) announced that health insurance rates for 2015 would only rise an average of 4.5%. News outlets and politicians that support PPACA (Obamacare) are crowing how this means that Obamacare is really, really controlling healthcare costs and isn’t that just grand! Earlier in the week, for instance, these same proponents had used a portion of a report of the Medicare board of trustees to suggest that Obamacare was holding back the costs of that program as well.

Let’s take a moment to consider some other issues here::

1) Rate adjustments going into Obamacare ranged from “holy cow” to “OMG!” in California in 2014 (not considering premium subsidies);
2) As it happens, there is an initiative on the 2014 statewide ballot in California that would require health insurance rate increases over a certain amount to be approved by the voters;
3) Insurance companies are still “protected” by an excess loss fund that was built into the Obamacare legislation. That fund will wind up in 2017, requiring insurers to provide their own excess loss coverage, something that can be quite expensive.

So, much of the current rate structure in California health premiums was added in 2014.That inevitably took some rate pressure off of the year ahead. That said, there is also insufficient experience with overall claim levels under this new structure. It is known that most early enrollees have significant medical history issues, with higher than average expenses. Without the participation of large numbers of low utilization insureds, the costs of coverage will invariably increase. And then, consider this……………..

Some statistics, that certain agencies are trying their best to suppress, already show that about 25% of enrollees during Obamacare’s open enrollment have already lost or dropped their coverage because the premiums have not been paid. This leads to a smaller insured pool and a smaller premium paying base — all this on top of the fact that a large percentage of the key 18-34 demographic simply avoided enrolling in coverage and paying into the pools.

In addition, as one might imagine, health insurance companies are dead set against the California rate initiative coming up in this year’s elections. The insurers note (correctly) that Obamacare has restrictions on both rate increases, as well as the percentage of premiums that is used to pay claims — both de facto restrictions on rate structure. So, now the insurers have every reason to want to avoid adding fuel to a populist fire that might insure the passage of the initiative, and therefore are allowing for a lower rate increase proposal. (note**this may well be a situation, regardless of outcome, where everyone’s goose gets cooked)

Health plans, in the run up to the 2014 roll out of Obamacare with all of its new coverage mandates, used a wide range of tools to make their pricing competitive, one of which was creating plans with extremely narrow networks. This had the effect of restricting access to a large number of doctors and facilities. One wonders just when the medical profession is going to stop allowing themselves to be used as doormats and rise up to protest the program restrictions. If docs haven’t been paying attention to what has been happening with reimbursement and benefits cuts over at Medicare, they might do well to pay closer notice — it’s coming their way in a big hurry.

So, before one pops the bubbly and proclaims the California announcement to be the trendsetter for other plans around the nation, it would be good to ponder the actual circumstances and the realities involved.

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