Tomorrow is the big day. State and federally run health exchanges will open for business and consumers will get their first opportunity to really get a glimpse at the selection of health plans available to them.
Perhaps no factor has been more uncertain since the passing of the Patient Protection and Affordable Care Act, which you probably know best by now as Obamacare, than where premium prices would head over the first few years.
The idea behind the crafting of the PPACA was to reduce the uninsured rate in this country and spread medical costs over a larger percentage of the population so as to reduce the rate of medical inflation. In order for this to happen insurers would need to attract a significant amount of healthier individuals to offset the costs to treat older and/or sicker Americans which comprise the bulk of their expenditures. As a study from the Department of Health and Human Services using data from 2008 and 2009 showed, just 5% of the population accounted for half of all medical expenses.
Obamacare premiums' surprising move
According to a study released by research firm Pricewaterhousecoopers, utilizing data from the Health Research Institute, it would appear that a vast majority of consumers' fears of excessive premium price hikes were mostly unfounded.
As of early November, seven of the 50 states, and Washington D.C., had finalized their premiums for 2015, while an additional 36 states had submitted their rates to their states' insurance commissioner but they had not yet been finalized. Overall, the average premium increase among all states was just 5.6%, which is an increase that's lower than many had expected considering just how many sicker individuals were expected to sign up in 2014 due to the fact that insurers could no longer exclude people with preexisting conditions. Even comparing this to the long-term inflation trend for medical costs would show that this is on the lower end of the cost inflation spectrum.
The initial implication is that Obamacare is doing a good job in the early going of containing costs. The transparency of its online health exchanges is allowing consumers to make smarter decisions about their own well being, and the minimum required benefit clause of the PPACA is making it easy for the consumer to make an apples-to-apples comparison that previously had been nearly impossible.
Four states with falling Obamacare premiums
While nine states are expected to deliver double-digit increases in overall plan premiums, four states on the opposite end of the spectrum are expecting their premiums to fall from 2014. These state are:
- Mississippi: projected decline of 9.3%
- Oregon: projected decline of 2.5%
- Connecticut: projected decline of 1.8%
- Rhode Island: projected decline of 1.4%
Aside from the fact that residents in these states are going to feel like they've won the 2015 Obamacare jackpot with average rates across the state falling, it highlights an even more important point about why rates are staying down: increasing levels of competition among insurers.
Based on a report issued by the Department of Health and Human Services in late September, the number of insurers participating in the 44 states that the HHS had data on at the time was set to increase by 25% to 248 insurers. Like with any good or service, the more competition that's present, the more the pendulum swings in favor of the consumer as the businesses are likely to become price-competitive in order to win over consumers. With a number of lower-income-focused insurers and national insurers expanding their coverage, it's looking like consumers will continue to benefit from this trend of increasing competition.
Molina Healthcare (NYSE:MOH), for example, dipped its toes into the individual market for the first time last year. Prior to Obamacare it had exclusively made its living off government-sponsored members via Medicare and Medicaid. With no prior experience in individual market policies, Molina had a tendency to overshoot on its pricing last year, thus netting it just a hair over 18,000 members on the individual market in 2014 – a fairly disappointing figure considering it was operating in the lucrative California and Washington markets. However, with the company requesting a decrease in premium in Washington state, Molina could stand out from the crowd as the health benefits provider focusing on the cost-conscious consumer in 2015.
UnitedHealth Group (NYSE:UNH) could see similar benefits, but for a completely different reason. UnitedHealth actually has plenty of experience with individual market plan pricing, but simply chose to stay on the sidelines in 2014 and participated in only four out of 50 state exchanges. This year UnitedHealth is offering its products in 24 of 50 states, and with few prior price comparisons among these 24 states, it can accurately say that in many states it didn't raise its prices in 2015. Having a solid reputation could allow UnitedHealth to pick up a lot of new members this year. Furthermore, having avoided the rush to enroll last year, which probably saw sicker people eager to enroll, could net the company a more favorable mix of enrollees.
The waiting game
Similar to last year we're going to have to wait a few weeks to get a real feel for how accepting consumers will be of a modest hike in premium prices. With the individual mandate penalty moving noticeably higher, we could see an increase in the number of young adults enrolling for health insurance, too.
My gut feeling tells me we're likely to see a lot of plan switching this year as consumers focus even more on value and price, and my suspicion is that new entrants and lower-income-focused insurers are going to be the biggest beneficiaries.