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Health Care & Life Sciences / Life Science & Biotech

Do double-digit Obamacare rate hikes mean the law has failed? No, but ...

March 31, 2014

Joe Swedish the CEO of WelllPoint Inc., said recently that enrollment in the Obamacare exchanges went according to his company’s expectations and that he expects double-digit premium hikes in the Obamacare exchanges next year.

“There will undoubtedly be remarkable price increases,” Swedish told Modern Healthcare magazine, yet added that the demographic mix of WellPoint's new enrollees “has turned out how we expected.”

Can those statements both be right?


In fact, Swedish could have issued those comments about individual health insurance markets any time in, say, the past two decades, and they would have been accurate.

The individual markets, which cover about 5 percent of all Americans, have been marked by double-digit increases just in the cost health care services.

Even before Obamacare hit, the “medical trend”—industry-speak for prices charged by providers—has been running about 11.5 percent for the Anthem health plans WellPoint sells here in Indiana.

So unless that trend changes for 2015, enrollment that was priced exactly according to insurers’ expectations would still produce a double-digit price hike.

Now, there have been some indications that medical prices have been a bit slower than normal. National increases in medical spending have been running at 3.9 percent for the last few years, according to the Centers for Medicare and Medicaid Services. But that might be changing. In the fourth quarter of 2013, health care spending rose by 5.6 percent—the highest rate in 10 years.

Also, keep in mind that spending is not the same thing as prices. And prices have continued to go up. Indiana University Health, one of the largest hospital systems in Indiana, reported Friday that it raised prices 8 percent in 2013.

So if premiums on health plans sold in the Obamacare exchanges do, indeed, rise in the low double-digit range, I don’t think it will be fair to blame it on Obamacare—although don’t expect candidates for Congress to observe that bit of fair-play during this election year.

More broadly, however, if Obamacare’s premiums rates continue to go up at roughly the same rate as individual insurance rates did before, it can be considered a failure.

Obamacare is formally known as the Patient Protection and Affordable Care Act. It did improve consumer protections in the individual insurance market—where policies previously were subject to non-renewal or a huge premium spike if a patient had any significant medical bills in one year.

In that way, pre-Obamacare individual health insurance wasn’t really insurance.

Now that Obamacare prevents health insurers from considering patients’ health status—other than their age and smoking habits—the law does, indeed, offer protection to consumers for unforeseen medical issues.

But the “affordable” part is another matter. Critics of Obamacare have said for years—and as recently as a couple months ago—that it would lead to huge price increases, perhaps even causing "death spirals" in the Obamacare exchanges in some states.

If premiums only go up in the 10 percent to 15 percent next year, that certainly won’t induce a death spiral.

But “not a death spiral” is faint praise for a law that President Obama once described as the final word on health reform.

If double-digit premium hikes for individual health insurance consumers are still the norm in 2016 and beyond—particularly for health plans that come with narrower networks of hospitals and doctors—then Obamacare will, indeed, have failed in one of its key goals: to lower overall costs by spreading risk across more consumers.

This isn’t a foregone conclusion. We still have lots of small employers that are likely to join the Obamacare exchange risk pools in the next two years. And Obamacare’s rising individual mandate taxes are expected to drive even more people to buy in the exchanges.

Those events, by spreading risk even broader, might improve the affordability picture in future years. But for now, the year-to-year price increases of individual insurance under Obamacare look a lot like they did before Obamacare.

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