The single and double-digit premium increases that health insurers in 10 states have reported for next year may be tough on enrollees’ wallets, but they’re good news for insurance companies.
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Moody’s Investors Service issued a research note Monday that higher premiums is credit positive for insurance companies, which have arguably taken a hit under President Obama’s signature legislation.
The Wall Street Journal analyzed filings from 10 states including Maryland, Oregon and Michigan, and found the lowest increase for premiums was 8.5%m and the highest was 22.8%.
The Affordable Care Act requires all Americans to have health insurance, but some experts say the law’s rocky rollout has been at the expense of the insurance companies. The administration’s “fix” for enrollees that allows the reported six million people who received coverage cancellation letters to keep their plans through 2014 at the insurers’ and state regulators’ discretion.
The federal insurance marketplace, healthcare.gov, still lacks a back-end mechanism for insurers to receive payments from the government for subsidies and cost-shared plans, leaving insurers to manually bill the government. These two issues have left insurance companies with a hefty load of administrative work.
Steve Zaharuk, author of Moody’s research note, says that while the latest rate increases are a positive for insurance companies, the overall outlook for insurers in 2014 and early 2015 is credit negative. Moody’s was the first agency to downgrade its outlook for insurers for this year in January.
“Insurers got a lot of volume for members that enrolled, but the experience is still uncertain,” Zaharuk says. “Most companies think they will lose money or break even on this block of business for 2014.”
As medical costs continue to rise, new drugs and therapies get introduced and the ACA continues to kick in, premiums have nowhere to go but up, Zaharuk says. The risk pool was also altered for the first year because of the administrative fix, potentially skewing it toward older and sicker enrollees, who are more expensive to insure, he adds.
“Healthier people would likely keep their old plans, which changes the risk pool, meaning insurers have to charge more.”
In year one, more than eight million people signed up for coverage on both state and federal exchanges, although the health status of the enrollees has not been reported.
Insurance premiums are expected to increase by around 10% for many, analysts and insurance companies have predicted, as the ACA heads into its second full year of open enrollment.
According to the Department of Health and Human Services, the average premium in the first year was about $328 a month, pre-subsidy.
Subsidies were available in 2014 for those making up to 400% of the federal poverty level, about $45,000 annually for an individual and $94,000 for a family of four.
A recent report from HHS found nine in 10 enrollees on the federal exchange, Healthcare.gov, received a subsidy in 2014 to help cover their premium payment, and that these premiums fell 76% with this assistance.
While the premiums that have been submitted do show hefty hikes, Zaharuk says it’s important to remember they are not yet finalized.
“It’s still early in the year, insurers can still change their minds about whether or not they plan to participate on the state and federal exchanges, and the rates have to be approved by regulatory boards,” he says. “It’s still a tough environment for insurers going into 2015, there are too many uncertainties in general about utilization and competition.”