If you thought the Affordable Care Act, which is affably known as Obamacare, was a polarizing law prior to its implementation, then witnessing the topsy-turvy nature of enrollment between October 1 and March 31 probably had your jaw hitting the floor.
Just two months after enrollments began marketplace enrollment was already more than 1 million expected members behind schedule due to a myriad of information technology-based issues surrounding the architecture behind the federal health exchange, Healthcare.gov. However, just when it looked like all hope was lost and that enrollment would be lucky to top 5 million by March 31 the procrastinators came out of the woodwork, and including those persons who filed an extension to complete their application enrollments, tallied better than 8.1 million, crushing the Department of Health and Human Services' initial target of 7 million enrollees.
Is this premium request for real?
Investors, consumers, and government officials assumed that higher enrollment figures could potentially lead to more subtle premium price increases come open enrollment in 2015 (which begins Nov. 15) since more people signing up should theoretically lead to more citizens sharing in overall health-care costs. Three weeks ago we actually witnessed some possible evidence of this in my home state of Washington with Molina Healthcare (NYSE: MOH ) proposing a nearly 7% premium decrease to the Office of the Insurance Commissioner. The remaining insurers within the state largely requested mid-single-digit to low double-digit percentage increases.
Well, don't look now but another insurer in a separate state may make Molina's premium reduction look like child's play.
As reported by The CT Mirror, a Connecticut-based news publication, Healthy CT proposed dropping its health insurance rates in 2015 by an average of 8.9%, although the magnitude of the drop varies by plan. On one end of the spectrum, members in the Healthy Partner preferred plan would see their proposed premiums drop 3%, while Healthy Partner Basic members could see their premiums fall by nearly 21%!
But just how likely is it that some citizens will see their premiums drop significantly in 2015? Perhaps more likely than you think.
Is your premium going to fall in 2015?
Make no mistake about it; based on the limited number of state filing that we've had access to thus far the majority of insurers are proposing a rate increase. One reason for this increase is simply based on higher taxes tied to the implementation of Obamacare, which will rise from $8 billion in 2014 to $11.3 billion in 2015. There's no magic trick to paying these higher taxes without most insurers bumping up their premiums in some meaningful way.
However, we're also witnessing an interesting trend among the small sample size of insurers who've only recently entered the individual insurance market: they appear to have overpriced their 2014 plans. By a similar token, a number of established health-benefits providers in Washington state and Connecticut are requesting high single-digit and low-double digit premium increases, implying that they potentially underestimated premium costs. Long story short, what this means is that pricing health insurance plans is as much a guessing game for insurers as it is for consumers at this point in the game. Neither Molina nor Healthy CT have ventured into the individual insurance market previously, so this is an entirely new stomping ground for these two companies. As the learning curve takes shape, you very well could see additional insurers in other states requesting premium decreases.
Also keep in mind that these early figures we're seeing are merely proposals for 2015. In other words, insurers don't simply say "We're going to charge 'X' for 2015, and that's that!" Insurers have to submit their proposals to the Office of the Insurance Commissioner and then some "bargaining" ensues. Ultimately consumers would like to see premium rates falls, but that won't be the case every time. However, it's probable that a number of the proposals we're seeing in the early going will be adjusted prior to Nov. 15.
Another point worth mentioning is that individual marketplace competition is increasing, and competition ultimately benefits the consumer by giving them more choices and potentially more competitive pricing. As noted by The CT Mirror, UnitedHealth Group (NYSE: UNH ) is also readying to become the fourth insurer to enter the state. UnitedHealth pulled out of a number of key markets prior to the Oct. 2013 enrollment launch primarily because it wanted to observe as a bystander during the first year so it better understood how to price its plans in 2015, and in order to see what states offered it an opportunity to add a sizable number of new members. With a year now under its belt UnitedHealth has spotted what markets afford it ample opportunity and it's begun to wiggle its way deeper into the individual insurance marketplace.
One question that's a mixed bag
If there's one thing, though, that these early stage premium proposals have taught us, it's that we don't know much, if at all, about the make-up of how many healthy people versus sick people will enroll in 2015. Insurers in Washington and Connecticut will certainly offer you their prediction on what they expect to happen to medical costs next year, but the story from one insurer can be markedly different from another.
The truth of the matter is that we may not have a good bead on the enrollment mixture (healthy versus sick) until the penalties for not being insured rise to a point where the balance between remaining uninsured and the benefits of being insured move closer together. This point may occur in 2015 or 2016 as the penalties associated with not being in compliance with the individual mandate will soar.
Chances are very good that we're going to revisit the topic of premium pricing a few more times before Nov. 15 rolls around, but these early proposals would appear to indicate that most consumers will be facing premium prices increases that are modest in nature, with some even reaping the benefits of a premium price decrease. These smaller-than-anticipated price hikes, along with significantly higher penalties for not buying health insurance, could be the perfect combo of catalysts needed to generate strong new member enrollment for insurers across the board in the coming years.
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