In the first chapter of this explanation, we took a look at the “3Rs”. We had to do that, so you can understand why rates are going to increase, in some cases by large double digits, in 2016 for individual and small group health insurance plans. To flesh this out, I have drawn from a guest post by health insurance consultant Robert Laszewski in Forbes from 6/1/2015.
Information from several states so far have painted a picture of larger than expected rate increases for 2016. Laszewski points to two major factors, plus there appears to be a third::
  • Enrollments have been significantly less than originally projected. In fact, the administration, about two months ago, revised their enrollment projections downward, and then claimed that, overall, everything was going according to plan;
  • With 2 years of claims data, and in anticipation of the expiration of 2 of the 3Rs, plans are adjusting rates upward to partially prepare themselves to continue to operate in the 2017 timeframe and beyond;
  • Claims have been substantively greater than projected in 2012.
So, here are some examples::: “Texas Blue Cross… commented in its federal government rate filings that it covered 730,833 Obamacare individuals in 2014 with premium of $2.1 billion and claims totaling $2.5 billion–for a medical loss ratio of 119%. The plan further commented that, after the “3Rs” reinsurance adjustments, they lost 17% to 20% of premium in 2014-that would be about $400 million. They are only asking for a 20% rate increase.” Texas uses the federal exchange.
“CareFirst Blue Cross of Maryland is asking for a 34% rate increase on its PPO plan and a 26.7% rate increase for its HMO. CareFirst has an 80% market share in the Obamacare exchange and only 30% of the eligible Maryland market has signed up on the exchange.” Maryland has a state-based exchange.
“In Oregon, where less than 35% of the eligible have signed up on the exchange, the biggest insurer with 52% of the market, Moda, has asked for a 25.6% increase. Lifewise, with a 19% market share, has asked for a 38.5% increase.” Oregon runs a state-based exchange.

“Blue Cross Blue Shield of Tennessee, with a 165,000 members making up 70% of the Obamacare exchange is asking for a 36.3% increase. The second biggest player is asking for a 15.8% increase. Less than 40% of the eligible exchange market signed up in Tennessee.” Tennessee uses the federal exchange.

“In Georgia, Humana is asking for 2016 individual plan rate increases from 14.8% to 19.44%. In Iowa, Wellmark Blue Cross, which only sells off the exchange, is asking for a 43% increase on its Obamacare compliant policies. Coventry, which has 47,000 Obamacare customers, is asking for an 18% increase for its on-exchange business. The Kansas insurance department has not made its rate increases public yet but has said that plans will increase by as much as 38%. Less than 40% of the eligible have so far enrolled. Pennsylvania is not encouraging with market leader Highmark asking for increases ranging from 13.5% to 39.65% and the Geisinger HMO asking for increases from 40.6% to 58.4%.” GA, KS, PA use the federal exchange; IA has a partinership program with the federal exchange. Read the rest of Laszewski’s article here::

As mentioned yesterday, Colorado (CO has a state based exchange) hasn’t reported the rate requests from insurers, which were submitted in May. If the Division follows last year’s practice, they may publish a “typical” rate adjustment in July, but this will likely not be a mean or a median, but a rate for a single specific demographic. Not much can be derived from such numbers.

That said, it appears that Colorado will continue to have an above average number of insurers to choose from in 2016, both on and off exchange. Will more competition keep premiums lower in Colorado?

What will be the second lowest cost Silver plan baseline cost is not yet known, but this will be an important variable in determining premium subsidy amounts for 2016. Therefore we don’t yet know if subsidy amounts will be higher, lower or stay roughly the same as in 2015.

Most readers will naturally ask — where is the relief from these large rate actions? ACA proponents point to the premium subsidies, but many folks have learned from the experience in 2015, this may not be a reliable option. No other options, either legislative and administrative, have been proposed or introduced at this time. 

As always, please call with any questions or feedback. If you have an idea for a subject you’d like addressed in a future email, please let me know. My number is 303.912.5490.

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R Allan Jensen, CLTC
Investment Advisor Representative
Southwind Financial Services, LLC
Financial Planning and Investment Management Services offered through Jolliffe Capital, Inc., Registered Investment Advisor.