Could Obamacare Really Cause Premiums to Rise By 59% in This State?

With Obamacare premium proposals for 2015 varying wildly across the country, residents in this state could be bracing for a big case of sticker shock with a proposed increase of as much as 59%!

Jul 6, 2014 at 10:32AM

If you thought that the end of the open enrollment period would mean an end to the bifurcation of opinions surrounding the Affordable Care Act, better known as Obamacare, then you have another thing coming.

While total enrollment in state and federally run health exchanges in the first year handily topped the lofty expectations set forth by the Department of Health and Human Services in Sept. 2013 of 7 million enrollees, the end result doesn't appear to be shrinking premiums as some had hoped.

We have seen some rare instances in Washington state with Molina Healthcare (NYSE:MOH) and in Connecticut with Healthy CT where premium decreases were proposed, but this had more to do with these insurers venturing into the individual market for the first time ever and getting their feet wet in 2014. For more established insurers the rate proposals for 2015 have been trending higher, and in some cases they've been all over the map.

Three big concerns insurers have in 2015
There are a number of concerns that are pushing premium proposals higher for 2015.

Images

Source; Damon Sacks, Flickr.

To begin with, a recent Gallup poll would imply that a non-optimal number of sicker young adults signed up in 2014. Insurers were counting on a good number of healthier young adults signing up in order to counteract the higher costs often associated with treating elderly and terminally ill patients. However, we're still not sure how often these younger adults will actually visit the doctor, so the jury's still out on whether this is truly bad news for insurers.

Secondly, rising prescription drug costs are exacting their toll on insurers. Few drugs have created as much of an uproar with insurers and consumers alike as Gilead Sciences (NASDAQ:GILD) oral hepatitis C drug Sovaldi which delivers a remarkably high sustained virologic response rates in patients after 12 weeks of treatment (i.e., no detectable levels of disease), but costs a whopping $1,000 per day! Simply put, the costs of Sovaldi and a number of other drugs, both orphan and non-orphan, are straining health-benefits providers.

Finally, Obamacare tax rates are heading higher in a number of states in 2015. Last year more than a dozen states received federal funding to help build and maintain their state-run health exchange. In the coming year this federal funding stops, meaning states are now responsible for raising the funds required to maintain their exchange. As I noted last month, Rhode Island has plenty of its federal funds still squirreled away, so this isn't a big deal. But, residents and health insurers in Colorado could be in for a rude awakening with the state announcing a $1.25 per member fee on individual and small-group health-plan whether or not they were purchased through the state's exchange, and imposing a 1.4% fee on premiums paid through the state's exchange. The reasoning behind these fees is to narrow its funding gap to operate its health exchange.

Price hikes in this state could make your jaw drop!
Thus far we've seen a number of states where insurers have proposed sizable increases for the upcoming year.

Www
Source: White House on Flickr.

In New York, MetroPlus, one of the low-cost leaders in the state, submitted a proposal asking for as much as a 28% increase in plan pricing. By a similar token, CareFirst, the dominant insurer in Maryland, proposed premium increases of 23% to 30% last month. As The Washington Post pointed out, CareFirst proposed a 25% increase in 2014 but only wound up receiving about half of its requested hike from Maryland's Insurance Commissioner.

But next to what residents in Indiana might face, these potential premium hikes look reasonable. According to the Indianapolis Business Journal in May, Physicians Health Plan of Northern Indiana is requesting an average price increase of 46% with its maximum plan increase coming in at a jaw-dropping 59%! Physicians Health Plan cited an unfavorable number of older enrollees and a higher morbidity (i.e., disease) rate associated with those patients as the reason it requested such a large hike in premiums.

Images

Source: Bark, Flickr.

Indiana's other insurers also issued proposals that were all over the map. Anthem BlueCross BlueShield, operated by WellPoint (NYSE:ANTM), offered up an average premium boost of 9.7% which was more or less in line with its previous expectations. Centene (NYSE:CNC), a provider of Medicaid-based health benefits that's begun dipping its toes into the individual market, also confounded its members with an average proposal that calls for an 8.8% decrease in premiums, but which ranged from a decrease of  up to 15.5% for some plans to an increase of as much as 53% for others. MDwise, the fourth and final insurer in the state, requested a mammoth 35% premium hike!

Is it time to sound the alarm?
I'll be the first to admit that some of these increases sound downright scary, and they're certainly fuel for the fire to those who oppose Obamacare. However, we should also keep a couple of factors in mind which may bring these astronomical price hike proposals back to reality.

Www
Source: Francisco Osorio, Flickr.

First of all, keep in mind that these initial rate proposals are nothing more than estimates sent to the Office of the Insurance Commissioner in each state. Insurers obviously want to price premiums as high as possible to beef up their margins, but Insurance Commissioners rarely allow double-digit premium hikes to sneak by without some negotiation and reductions. The ACA was created with the expectation that regulators would take an especially close look at insurers requesting double-digit increases, so expect these proposals to dip from their starting point.

Also, we're beginning to witness a number of larger insurers that held out of most individual markets in 2014 expanding into new states. National insurers like UnitedHealth Group (NYSE:UNH) had the opportunity to largely observe from the sidelines last year. With a year under its belt UnitedHealth has noted its intent to offer health plans in Washington state, Connecticut, and Maryland so far, with the expectation that its moat of opportunity could expand further. As competition within a state increases premium prices should fall. With only four insurers operating in Indiana any additional insurers that choose to offer plans in the state could wind up drastically lowering prices.

Lastly, I don't believe it's time to sound the alarm for the same reason I alluded to earlier: we just don't have enough data yet to determine how often these new enrollees will visit their doctor. Young or old, sick or not, the key factor for insurers is how often its members visit the doctor. If this figure proves less than expected it could result in a flattening of premium price trends. Conversely, if the demographics of young enrollees really are proven unfavorable and these newly insured young adults visit their doctors regularly, it could result in substantial premium hikes. But, we just don't know which way the pendulum will swing as of yet.

With Obamacare exchanges set to open in a shade over four months we're going to soon have some answers, but don't be surprised if these sticker shock premiums aren't anywhere near their initial proposals when all is said and done.

If you think Obamacare is transformative, wait till you get a load of this revolutionary new product. 
Imagine the multi-billion dollar sales potential behind a product that can revolutionize the way the world shops and interacts with its favorite brands every day. Now picture one small, under-the radar company at the epicenter of this revolution that makes this all possible. And its stock price has nearly an unlimited runway ahead for early, in-the-know investors. To be one of them and hop aboard this stock before it takes off, just click here.  

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of, and recommends Gilead Sciences and WellPoint. It also recommends UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers