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

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.

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.


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.

Source: Bark, Flickr.

Indiana's other insurers also issued proposals that were all over the map. Anthem BlueCross BlueShield, operated by WellPoint (NYSE: WLP  ) , 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.


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.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 06, 2014, at 11:19 AM, sporked wrote:

    Remember, we have to pass the bill to see whats in it?

    Seems the comparison to a stool sample gets more accurate every day.

  • Report this Comment On July 06, 2014, at 12:40 PM, Leftofcenter wrote:

    One factor that will hold down Obamacare expenses to insurers is that a high percentage have signed up for high deductible insurance plans. This is no insurance until the deductible is met. Worst yet, it something expensive is needed and the policyholder can't meet the deductible up front then that too is no insurance. The big insurance companies are paid for these policies anyway and that increases their cash flow for doing nothing. The uninsurance rate is only the tip of the iceberg. High deductibles for many are also no insurance. Obamacare is a dismal failure. Single payer is the only answer.

  • Report this Comment On July 06, 2014, at 2:50 PM, slanciano wrote:

    I’m a Racist for criticizing Obama.

    I’m a Terrorist because I believe in my 2nd Amendment Rights.

    I’m a Tea-Bagger for supporting the Constitution.

    I’m a Threat To National Security because I refuse to shut up!

    I’m a Troublemaker for asking unanswered questions.

    I’m a Birther for questioning the lack of documentation of the Commander In Chief.

    I’m a Traitor for blowing the whistle on my corrupt Government.

    I’m a Conspiracy Theorist for presenting documented facts.

    I’m Anti-American for supporting Constitutionalists.

    I’m a War Monger because I support the Troops.

    I’m a Homophobe because I believe in the sanctity of marriage between a man and a woman.

    I’m a Greedy Capitalist because I believe that you are not entitled to what I have earned.

    I’m a Separatist because-because-because! I oppose Illegal Immigration and Sharia Law.

    Yep, Guilty, and Proud Of It!!!

    I Love our country's freedoms folks so I think I will be voting Republican

  • Report this Comment On July 06, 2014, at 8:53 PM, roger142 wrote:

    I am assuming the states that have a high premium increase got more people with active pre existing conditions. As opposed to regular pre existing conditions that really do not matter, but those people could not get affordable health insurance because of them.

    One of the few things I really like about the Affordable Care Act (OBamacare) is the 80/20 mandate that requires a health insurance company to not use more than 20% of premium payments for administrative cost and their profit. This puts health insurance companies into the same league (category) as utility companies that every state PSC regulates. The more efficient they are, the bigger their profit. 8 to 10% seems to be average for my electric supplier.

    The big problem with health care cost in America is that only the insurance companies seem to be able to deal with hospitals for the best prices. Seriously, in my state I could walk into an emergency room with a broken leg and a bag full of cash, and the hospital will still charge me 400% more than an insurance company will finally pay in a few weeks.

  • Report this Comment On July 06, 2014, at 10:15 PM, ShahT12 wrote:

    Gilead is going to sale the same drug for 1000$ in India. If we behave like fools and split demand in zillion small pools, how can we negotiate effectively with suppliers? Which part of porter 5 forces these so called free market supporters do not get?

  • Report this Comment On July 06, 2014, at 11:36 PM, DebraL wrote:

    The only reason is because of the opt out provision that SCOTUS came up with to weaken any healthcare law that is passed. The House in Congress refuses to cooperate in anyway. They could care if we have healthcare. We should have a single payer system. Get rid of Private health insurance. They have ripped us off for far too long. All healthcare should be free. Pay your monthly bill and then all care is free. That's how civilized countries do it. Our House Speaker is a fool and a liar. I don't believe a word that comes out of his mouth. I study politics all day everyday. I am disabled, but I get no benefits. Our household makes 40 dollars a month too much for me to qualify. My husband gets everything. We have the same income. I haven't been able to work since 2002. This is not the way America has ever been. She always managed to help and take care of We The People. Not anymore. Between SCOTUS lame excuse for democracy has steam rolled over regular people. The men on the court need to be impeached. They have made up their own definition of democracy. It is a mockery of everything this country was built on. If your insurance goes up blame the House of Reps. The Republican and tea party obstructionists. The Weeper of the House has to sue Obama. What a crock. Is he paying for this himself? Or once again the rich pay for nothing and steal from the real taxpayers. You people are lost.

  • Report this Comment On July 15, 2014, at 4:38 PM, brff1989 wrote:

    8 million enrollees, 2/3rds are Medicaid and do not count as "enrollees" since they're not putting a dime into it.

    = 2,666,000 who purchased health plans through the exchanges, 90% of whom previously were insured thorugh the individual market and lost their plans on January 1st, so they were forced into Obamacare.

    =266,000 individuals who now have insurance through Obamacare that didn't have it last year.

    Yes, folks, we spent a trillion dollars to get 260,000 new people into the health insurance marketplace.

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