What do proposed rate hikes mean for marketplace consumers?

Once again, Avalere Health has found wide geographic variations in proposed rate hikes for individual marketplace plans as reported by the nine states for which data were available as of May 23, 2016. Average proposed rate increases across all silver-level plans for a 50 year-old nonsmoker in 2017 ranged from 5 to 44 percent. The proposed increases will not necessarily reflect the effect on actual consumers, Avalere says.

States are required to review all insurer requests for rate increases of 10 percent of more pursuant to section 1003 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), which added section 2794 of the Public Health Service Act (PHSA). They may approve or disapprove the requests or mandate a lower rate. In 2015, Avalere reported proposed rate changes for 2016 ranging from a 12 percent increase to a 5 percent decrease (see Exchange consumers may find silver lining to rate increase cloud, Health Reform WK-EDGE, June 17, 2015). Although final rates are often lower than those proposed, the proposed 2017 rates for Indiana, Maine, Maryland, New York, Oregon, Virginia, Vermont, and Washington, D.C. are higher than the proposed 2016 rates Avalere previously analyzed.

Why the increase?

Avalere anticipates that slightly more than 10 million people will be enrolled in the marketplace at the end of 2016, in contrast to initial Congressional Budget Office predictions of 21 million enrollees in the same time period. Avalere posits that the risk pool may be “smaller and sicker” than insurers expected, requiring them to raise premiums to make the market sustainable. In addition, the risk corridor and reinsurance programs will end in 2016. Insurers may be raising premiums in anticipation of forgoing receipt of those payments, even though only 12.6 percent of risk corridor requests were actually paid (see 2014 risk corridor figures may raise alarm for some insurers, Health Reform WK-EDGE, October 7, 2015).

Effect on consumers

Despite the higher proposals, Caroline Pearson, senior vice president at Avalere, noted, “many consumers will be insulated from higher rates due to premium subsidies that limit monthly costs.” According to Avalere, 83 percent of consumers earned less than 400 percent of the federal poverty level (FPL) in 2016 and consequently received premium subsidies. An April 2016 issue brief from the HHS Office of the Assistant Secretary for Planning and Evaluation (ASPE) found that roughly 85 percent of marketplace consumers saw only a 4 percent rate increase in 2016 as a result of premium tax credits, a drastically smaller increase than the proposed 2016 rates (see Did insurers cry wolf on 2016 premium rate hikes?, Health Reform WK-EDGE, April 20, 2016).

Avalere noted that most consumers tend to choose the lowest-cost plans within a metal level, so that increases across all plans may not affect them. For example, proposed rates for lower-cost silver plans increased less dramatically than for high-cost plans, and in some instances, actually decreased. In addition, premiums vary widely between urban and rural areas within a state. Average statewide rate increases are not weighted based on enrollment and may overstate premium increases for the majority of enrollees.