President Obama may have signed the Patient Protection and Affordable Care Act, best known as Obamacare, into law back in March 2010, but one thing consumers have become quite accustomed to is the evolutionary nature of this health reform law. In other words, things are continually changing from one year to the next; and this enrollment period will be no different.
Change is the name of the game in 2016
For instance, on Jan. 1, 2016 we'll witness the employer mandate going into full effect. This actionable component of Obamacare requires businesses to offer eligible health coverage options to full-time equivalent employees and possible financial assistance to lower-income workers. It will affect businesses with 50 or more full-time equivalent employees, requiring them to be in compliance with at least 95% of eligible workers. Businesses that fail to comply could face fines of between $2,000 and $3,000 per employee.
As you may have noticed, the open enrollment period also features an earlier start date of Nov. 1, 2015 and an earlier end date of Jan. 31, 2016 relative to last year. This will shift again in 2017 and beyond in an effort to make things easier for health-benefit providers.
But, the biggest change this year is arguably going to be the dramatic increase in premium prices. Following the Great Recession premium price inflation has been very tame. In 2016, according to the latest report from the Kaiser Family Foundation (KFF), premium prices could rise as a whole by 10.1% based on the average price for the second lowest cost silver plan around the country. That's more than enough to get the attention of consumers, especially if they don't qualify for a subsidy.
Of course, not all markets are being hit. In fact, Kaiser Family Foundation's study of 49 major cities (one from each state save for Massachusetts where it was unable to secure accurate data) and Washington, D.C., showed that 12 of the 50 total cities were expected to see a year-over-year decline in premium prices. The largest of which came from Seattle, WA., with a 10.6% estimated decline. KFF used the second lowest cost silver plan as the benchmark for its year-over-year price comparisons, with a 40 year-old non-smoker being the fictitious test subject.
Seven cities where Obamacare premiums are rising by at least 30%
However, KFF also uncovered seven major cities around the U.S. that are estimated to see a benchmark plan increase of at least 30% on a year-over-year basis. These seven cities are:
- Nashville, TN (38.6% increase)
- Oklahoma City, OK (34.7%)
- Billings, MT (33.6%)
- Denver, CO (32.2%)
- Anchorage, AK (31.4%)
- Honolulu, HI (31%)
- Boise, ID (30%)
If there is some solace to be derived from these mammoth silver plan price increases it's that many of these cities were well below the average in terms of premium costs last year. For example, Nashville's benchmark silver plan in 2015 cost $203, which was among the lowest in the country. Similarly inexpensive plans could be found in Denver, Boise, Honolulu, Oklahoma City, and even Billings. All of these cities sported benchmark premiums of between $200 and $241 per month in 2015.
Consumers can also be thankful that a vast majority of enrollees will qualify for financial assistance. In each of the past two years more than 85% of enrollees have qualified for some form of Advanced Premium Tax Credit; on average this tax credit has been responsible for covering between two-thirds and three-quarters of an eligible consumer's monthly premium.
The truly horrifying increase on this list is Anchorage, which was already top of the list in terms of premium costs last year. A 31.4% increase to the second lowest cost silver plan in 2016 means a 40 year-old non-smoker is now paying $719 per month for health insurance, up from $547 last year! That's more than $8,600 for the full-year, and that's not including the added costs of copays, coinsurance, and/or deductibles if you seek medical care.
Still, you should keep in mind that the potential increase or decrease in premium costs can vary dramatically based on the variables used. If KFF looked at a state as a whole, instead of just its major city, we may have observed different results. Additionally, age and whether or not someone is a smoker can affect premium rates.
Why insurers are raising premiums in 2016
The question we should be asking here is why rates are jumping so dramatically in 2016, especially in the aforementioned cities.
Limited access to medical care is an explanation that works to explain Anchorage's high monthly premiums to start with, but it does little to explain why premium prices are soaring in 2016. To that end, I believe we have a handful of factors at work.
For starters, we have a number of new entrants into the individual insurance market throughout the country that simply didn't have a good grasp of pricing and individual market fundamentals in 2014 and 2015. Insurers and health cooperatives attempted to set the bar low on pricing in order to attract consumers away from nationally recognized health-benefit providers. While that did work to some degree, it also attracted a sicker and cost-conscious clientele, resulting in higher medical expenses, and in the case of nearly all healthcare cooperatives, red ink vis-à-vis medical loss ratios above 100%. The only way to correct this problem in the eyes of insurers is to boost premium prices to levels where they can either turn a profit, or improve their margin buffer if they're already profitable.
Also with more than half of Obamacare's health cooperatives closing up shop, it solidifies the role (and pricing power) of national insurers. With less in the way of low-cost competition in select cities and states, consumers are being potentially left with fewer choices and potentially bigger insurers that have substantial pricing power.
Lastly, the checks and balances designed to minimize premium cost inflation for insurers aren't as restrictive as regulators make them out to be. Although insurers are required to submit rate increase (and decrease) requests to a states' Office of the Insurance Commissioner for evaluation, there's not much an OIC can do to prevent a legitimate increase from happening. Thus, increases this year could simply be as a result of insurers feeling out the waters and still realizing they have ample pricing power.
It's tough to predict what the future may hold for Obamacare or consumers as the health law's constant evolution, and the 2016 elections, make long-term projections a near impossibility. However, if we stay on our current course, it would not be out of the question to assume that premium cost inflation could remain on the high end for the foreseeable future until insurers have built up a safe margin barrier with which to run their business.
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.
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