Don’t Expect ObamaCare Subsidies to Keep Pace with Rate Hikes

Now that the Affordable Care Act’s first open enrollment period has ended, the insurance industry is abuzz with talks of premium increases for 2015.

Some analysts predict double-digit rate hikes for individuals due to both the rising price of care and the costs insurers are made to bear under the law.

Vishnu Lekraj, senior insurance analyst at Morningstar, estimates on average, most insurers will hike rates by about 10% next year.

“That’s give or take. Certain regions may see higher double-digit increases. Some of the more rural regions will see higher premiums. Some of these plans are [currently] underpriced.”

The ACA ties subsidies to the federal poverty level, not the actual cost of health care and the rate at which it inflates. Subsidies during the first enrollment season were available for those making up to 400% of the federal poverty level, at about $45,000 for an individual and $94,000 for a family of four.

From 2010 through 2013, the individual federal poverty level increased on an average of 2.12%. For a family of four, it increased by an average of 2.05%, according to Census Data.

The Kaiser Family Foundation reports that in 2013, the average family premium increased by 4% and from 1991 through 2009, the average percent growth annually for health costs nationwide hiked by 5.3%.

A source close to the matter says Congress would have to change the law in order to alter the way subsidies are calculated.

But Robert Laszewski, who writes the Health Care Policy and Marketplace Review, says tying subsidies to the poverty level instead of health-care costs means trouble for enrollees next year.

“If we get big rate increases, the administration is basically saying that it doesn’t matter because people are insulated by Uncle Sam,” he says. “The federal government doesn’t care how fast the cost of ObamaCare goes up because the tax payer has to subsidize it. What is the incentive for the Obama Administration to control costs?”

And according to recent reports from policy think tank Rand Corporation, as of March 15, 6 million people had signed up for coverage on federal and state exchanges, but 9 million had enrolled directly through carriers. Those who enroll off-exchange cannot use subsidies toward their premiums each month, and Laszewski says many of these people had prior coverage, as well.

“This means these 9 million didn’t have subsidies,” Laszewski says. “Otherwise, they wouldn’t go direct through carriers. That’s two-thirds of the [current] ObamaCare risk pool.”

During the ACA’s first enrollement period, 7.1 million Americans selected plans on both state and federal exchanges, President Obama announced Tuesday.  The Department of Health and Human Services and the Centers for Medicare and Medicaid Services have not yet said how many of these enrollees received subsidies.

The average cost of care for a mid-tier silver plan is $328 per month without subsidies, HHS reported in September.

If subsidy thresholds fail to increase with the cost of health insurance, Lekraj says there will be lower participation on federal and state marketplaces.

“Not only are the folks needing these subsidy increases to keep up with pricing, but insurance companies are also dependent on these subsidies,” he says. “In order to incentivize these customers, you need them to move into the market and stay in the market.”