Obamacare Premiums Falling the Most in This State?

It's almost hard to believe that it's been more than four months since open enrollment for health insurance in 2014 closed. But that distance becomes clearer when you realize that open enrollment for 2015 is set to kick off in just under three months.

Source: White House on Flickr

To date, nearly 60% of all states have released health insurance rate proposals that have been submitted to them. Proposed premium rates submitted by health insurance companies are often viewed as a jumping off point for negotiation between the state regulators and the insurance company in question. Normally, the final premium price lies in between the initial proposal from insurers and what state regulators would like to see.

Despite the fact that we're likely to see some fluidity to the premium proposals already submitted in 29 states, and that we have a number of states with incomplete or uncommitted data, I nonetheless was excited when the Health Research Institute (HRI) announced its latest findings on preliminary individual market premiums for 2015.

Early indications from the 29 reporting states and the District of Colombia signal an average premium price hike of 8.2% across the country with an average, unsubsidized, monthly premium of $385. HRI also notes that Blue Cross Blue Shield, which operates in all 50 states, has requested an initial average increase of more than 9% based on the states reporting data thus far. 

Obamacare premiums could fall the most in this state

But, the real surprise came from the preliminary indication that two states are likely to see average premium prices decrease from last year. The first was Rhode Island with an estimated 1.4% decline in average premiums.

Would you care to venture a guess at the second state which as of now is on pace to have the steepest premium drop in the country?

If you said Oregon you should probably buy yourself a lottery ticket, because that was no easy guess. Based on HRI's data, Oregon's average premiums are poised to decline by 2.5%.

As you can see below, six of the 13 individual health plans in Oregon are expecting to see premium rates fall in 2015 (the changes are in sample premiums for a Portland resident aged 40):

Source: The Oregonian

The basics of why premiums rise and fall

Perhaps the most confusing aspect of the Affordable Care Act, the official name for Obamacare, is the underlying pricing on health plans. Prices can vary wildly from one state to another, and even from county-to-county within a state. Let's quickly recap some of the basic reasons why plan pricing differs so much around the country so that we can tie everything back together and you'll have a better idea of why Oregon's market rates are poised to push lower in 2015 based on preliminary estimates.

Source: Cover Oregon

Patient pool make-up is a big -- and I mean big -- factor when it comes to insurance company pricing. Prior to the ACA, insurers were able to turn away consumers with preexisting conditions. The reasoning is that sicker patients cost more to treat, so it wasn't beneficial for an insurance company to take on sick members. Under the ACA insurers can no longer deny coverage to people with preexisting conditions. This would imply that both sick and healthy people are enrolling for health insurance. The ratio of sick-versus-healthy enrollees will go a long way to determining individual plan pricing. In instances where a higher proportion of enrollees are sick, insurers are likely to request a premium boost to help cover those higher expenses. In situations where healthier people enroll we could see minimal price hikes, or perhaps even premium reductions.

There are also costs associated with the implementation and maintenance of the ACA. Marketplace exchanges cost money to maintain, and some states have turned to collecting a percentage of insurers' premiums in order to pay the cost of their exchange. Colorado, for example, charges a $1.25 per member fee on individual and small-group health plans regardless of whether or not the plan was purchased through the state's online exchange. To add, Colorado also adds a 1.4% fee on premiums paid through the state's exchange. Insurers can either eat this fee which works against their profitability or pass these costs along to consumers in the form of higher premiums.

Competition is another key factor when it comes to plan pricing. The more transparent competition between insurers in a state, the more choice for the consumer, and the likelihood of lower plan pricing to ensure competitiveness.

Finally, demographics play an important role, including the gender and age make-up of plan participants. On average, women live longer than men, and the elderly use up far more in medical expenditures than any other age group. Insurers use these and other facts to help set their plan pricing.

Source: National Cancer Institute, Wikimedia Commons

Why Oregon's average premium is falling

It would appear there's one primary factor helping to push Oregon's preliminary premium pricing lower: competition. Allow me to explain.

Oregon's exchange is fairly crowded with 13 different insurers competing. Just like any good or service, the more choice consumers have the lower prices will tend to trend. In prior years comparing health plan pricing ranked somewhere between difficult to impossible with consumers having to call each company one by one, or peruse their plans online one-by-one in order to get a bead on pricing. But the implementation of marketplace exchanges allows for simplified, transparent comparison which favors subtle price moves in order to attract consumers.

Also concerning competition, Moda Health captured just shy of three-quarters of Oregon's exchange enrollees in 2014. For Moda, having the dominant share in the state affords it the luxury of requesting a sizable premium increase (at least sizable as it relates to other Oregon health insurers). Also, seeing the greatest number of new enrollees (by far) probably means it received its fair share of sick individuals, meaning a price hike might be necessary to remain stable.

By the same token, smaller individual plan operators Oregon's Health CO-OP and ATRIO Health Plans, which didn't see anywhere near the enrollment they were expecting last year, need to aggressively cut their plan pricing in order to attract new members.

However, state regulators played a key role in pricing as well, reducing premium hikes for a number of insurers and disallowing steep cuts for others. The CO-OP, for instance, was seeking a rate cut of more than 20% but was state regulators only allowed for the CO-OP to trim its premiums by an average of 9.9%. 

The big picture
Because Oregon's health exchange, Cover Oregon, never quite got off the ground as expected last year, and numerous technical difficulties with the IT architecture behind the scenes created havoc during the enrollment period, Oregon decided to drop its efforts to individually run its exchange and join the federal system in 2015 (Healthcare.gov).

What does this mean for Oregon's health insurance providers? It means the potential to pick up a number of people who either held out on signing up for health insurance because of price objections, or because the exchange's software simply wouldn't allow them sign up. No one is exactly sure how many people stuck to the sidelines because of Cover Oregon's technical problems, but I would certainly opine that switching to the functional Healthcare.gov should help Oregon insurers facilitate stronger enrollments in 2015. Since price continues to remain one of the primary consumer objections to purchasing health insurance, participating insurers in Oregon have had to be extra cautious about price hikes.

Not set in stone

Not to beat a dead horse, but really take to heart that these are preliminary rates which could be subject to change. In addition, we have 21 states left to report their own insurer proposals, and one could very easily push Oregon to the wayside in terms of average premium decrease.

On the flipside, a good number of Oregonians have to be pleased with the generally modest premium increases and declines. On the surface it would also look as if Oregon's health insurers are poised for a successful year of enrollments; but I've also learned my lesson about making predictive forecasts on enrollment success after last year. Consider this a must-watch market during the upcoming enrollment period.