If you needed any more proof that time flies, how about the revelation that the Affordable Care Act, which is better known as Obamacare, is set to open for enrollment in just three days (Nov. 15).
After a topsy-turvy first year of enrollment that saw the ACA fall behind in its targeted enrollment by more than 1 million people only to wind up exceeding the Department of Health and Human Services' enrollment target by more than 1 million by the time open enrollment closed at the end of March, you can rest assured that it's going to be another exciting and somewhat unpredictable open enrollment period.
Perhaps the one question that sits atop all unanswered questions for consumers is exactly what they'll be paying for health coverage in the upcoming year. While we're still waiting on data from a handful of states, such as Texas and Massachusetts, as of Oct. 20, 2014, thanks to data provided by research firm Pricewaterhousecoopers, we're able to take a fairly accurate look at where Obamacare's premium rates are heading in 2015.
A big pricing surprise
The biggest surprise of the initial data aggregated by Pricewaterhousecoopers is that the average premium increase observed across the seven states that have finalized their premium data (and Washington D.C.) is a mere 3.5%. States which have reported their increases, but haven't necessarily finalized those increases yet with their states' Insurance Commissioner, are averaging an increase of about 6%. Put another way, the average premium increase is shaping up to be around 5% across the U.S., which is historically low compared to premium growth witnessed over the past five decades.
This is generally good news for insurers as well as consumers. For insurers it demonstrates that many had a pretty good grasp of what they should have been charging in 2014 for their premiums and, more importantly, the increase is negligible enough that it may not chase members to lesser expensive plans. Even so, a Radius Global Market Research poll that came out just weeks ago noted that two-thirds of respondents intend to change their healthcare plan in 2015 because they believe they can find a better value than what they currently have.
To build on that prior point, the tame increase in average premium prices across all four of Obamacare's tiers would suggest that Obamacare is doing the job it was intended to do, which is to control medical cost inflation by spreading costs over a bigger swath of the U.S. population.
Residents in these three states should expect to open their wallets
Of course, this doesn't mean there aren't some states expected to deliver pretty hefty premium increases to their residents. Based on the latest data from Pricewaterhousecoopers there are three states where premiums are on pace to rise by greater than 15%. These are:
- Kansas: 15.5% increase
- Pennsylvania: 15.4% increase
- Louisiana: 15.2% increase
An additional six states are expecting premium price hikes of between 10% and 15%.
Pennsylvania might be the biggest disappointment on the list after Healthinsurance.org pointed out that the state will have 15 insurers vying for residents' business in 2015, with a number of new participants. But as the publication also points out, many of these insurers are only focused on a particular regions within the state, meaning local competition can vary and may not always be competitive. This could be why prices are moving so significantly higher in 2015.
If there is a positive side, however, it's that UnitedHealth Group (NYSE:UNH) and Assurant (NYSE:AIZ) are throwing their hat into the ring in Pennsylvania this year. After sitting on the sidelines in 2014, both larger health-benefits providers could clean up in a state where incumbent insurers are seeing hefty price increases. It'll certainly take more than just Pennsylvania to make a big impact on either companies' bottom line, but it's quite likely a state where both could excel.
One somewhat common denominator with regard to premium pricing in the upcoming year is the number of new insurers on each exchange. Though not set in stone, the bigger the increase in the number of insurers on an exchange, the more competitive that exchange becomes, leading to an overall smaller premium price hike. There are exceptions, like Indiana which is welcoming nine new plan bids yet is still expected to see its premium prices rise by an average of 10.4%, but this far from the norm.
In Arizona, for instance, eight new plan bids will being the number of insurance underwriters in the state to 15 (more than doubling last year's participants). Not surprisingly, Arizona's average premium increase is only 4.5%. Colorado's insurer size is expected to grow by 50% to 15 insurers as well, with a modest average premium increase of just 2%.
Pay attention to these dynamics
Price remains the most important factor to consumers heading into open enrollment in 2015, but the broad expansion of UnitedHealth and a handful of other big-name insurers across the U.S. should make things interesting this year. With no prior Obamacare health plans in 20 of the 24 states UnitedHealth is operating out of this year it could swoop in as the insurer that "didn't raise prices in 2015" and garner quite a good chunk of the new members.
Also, it's worth noting that while many of the easy enrollees are out of the way since they signed up last year, it also means that companies like UnitedHealth and Assurant avoided signing up the sickest individuals which are the most unprofitable for insurers, and happened to be among the quickest to sign up in 2014. In a way you could say these insurers still remained selective about their patient pool and they could be ready to pounce in 2015.
It's going to be interesting to see how the dynamic of having more insurers participating ultimately affects enrollment, and whether or not a stiffer crowd of competition reduces prices for consumers, or simply knocks weaker insurers out of a state in future years and does little to control long-term pricing. These are questions consumers and investors will want to pay attention to going forward.