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

March 31, 2014
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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?

Absolutely.

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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  • Well done
    A well balanced column. Much we don't know. Given the huge surge in enrollment over the past two weeks, we know there is demand for health insurance. We don't yet know how the Marketplace will function over time in Indiana. As others have noted, success/failure may differ by state.
  • increases
    The problem with increases of "only" 10-15%, for those who are stuck in policies without subsidies, how many can afford increases of $50-$150 per month? One thing we know for sure...that $50-150 per month won't be spent at Wal-Mart, Target, Outback, Lowes, and numerous other places. And for those with subsidies, those without suffer the double whammy of both higher premiums and, eventually, higher taxes.
    • To Steve
      You are right that 10-15% increases are not good. If the ACA ultimately fails to change that picture, then we'll need further health reform. I just wanted to point out that double-digit increases in the individual market are not a problem that Obamacare created, just an issue it has so far failed to fix.
      • No fix in sight
        A major concern is that there is no "fix" for future premium increases in the ACA provisions. Many tout that the ACA caps profits, but the way that this works is part of the problem. The concept of any kind of insurance is to cover a large number of individuals over an extended period of time and have years with smaller payouts cover years with larger payouts. By making this a year by year measurement, insurance companies are in the best financial position if in fact they do have to pay back excess profits on a yearly basis, otherwise they are leaving money on the table and cannot build reserves for bad years. Can you imagine a car company that would have to rebate money to consumers in good years but eat losses in bad years? All of the exceptions that have been made to the original law has negatively impacted the risk pool so the odds that there will be very many profitable insurers is low. Although there is reinsurance that is suppose to help cover plans that have poor experience, it is supposedly funded by plans that have good experience but that outcome is now very unlikely, so insurers are not anticipating this so called "bail out". None of this has the impact of incenting insurers to hold down rate increases, they just need to increase premiums from year to year to generate the maximum allowable bottom line. Until providers are paid primarily for outcomes/quality/health status, and not on a fee for service/unit basis, annual cost increase will most likely not change.
        • To Dr Obama
          If you didn't see it, I reported in another story on Monday that the IU Health hospital system raised prices by 8 percent last year: http://www.ibj.com/iu-health-suffers-small-decline-in-2013-profit/PARAMS/article/46930
          • Hopeless Confusion
            There is no better way to insure the failure of the ACA than for private insurers to continue to jack up prices unjustifiably. As long as the shareholder-owned insurance cos. play a major role ( Obama's big mistake), earnings will trump the need to control costs to the insured. The ACA will fail in the end, I can only hope that even the most conservative among us will recognize that it is an economic dead-end to continue on this path. A Medicare expansion to include all ( Single Payer) is the only answer.
            • not apples to apples
              Trying to compare prices on individual policies last year with Exchange policies today is impossible. Most did not offer mental health benefits at all, for instance. Exchange policies must provide for "essential health benefits" (EHBs). Better quality. Better value? I will leave it to others for that. But it is not an apples to apples comparison.
            • Health Care System.
              I believe I saw where Ukraine was listed above the United States in a study of best health care systems. France(oh the horror) is considered having the best health care system. Our health care delivery system is an expensive disaster. The ACA can not begin to correct our system but it's a start.
            • yes, its destined to FAIL
              So basically the "affordable' Care Act is not close to being affordable....as predicted. While the media high five with the 7 million enrolled, the reality is that premiums will continue to rise and this law is a train wreck, exactly as some dems and ALL conservatives called it. First, conveniently getting the 'huge rush' in enrollments right at the deadline to put the sign ups exactly as predicted is more than fishy...yet the lapdog media doesn't even flinch, even coming from an admin that promised $2500 in savings and keeping our doctors. Obama basically bragging that he caused millions to lose their plans and have now been forced to sign up under Obamacare. Second, how many are newly insured. wasn't that the goal of obamacare. wonder how many of 7M actually happy with their increased premiums and coverage. For Obama, its all about perception. Reality and facts don't matter when you have a media to protect you. While dems try to play this off as a win, reality is going to show that americans are not happy with this law.....and several employer mandates delayed by obama haven't even taken affect yet. Wait until those hit working class and cause higher premiums, fewer hours, and lower wages. As pathetic as Obamacare is, what is truly pathetic is the eagerness to simply accept without question the obamacare numbers by our media. 7M means nothing without ages, number paid, number of newly insured, those on subsidies, etc, yet media refuses to ask the hard yet obvious questions.
            • yes, its destined to FAIL
              By the way...supporting Obamacare simply because our previous system was expensive and needed changed is absolutely insane. But hey, as a male, at least now I have access to annual pap smears.
            • Let's Not Be Hasty
              It amuses me that people are talking about 2015 rate increases when the 2014 policies have only been in effect for -- at most -- 3 months. I just came from the National Association of Insurance Commissioners Spring Meeting and talked to a many people, including some regulators, who are doubtful that increases will be approved for 2015 because there won't be enough experience with the new policies on which to base any projections. The more aggressive (consumer protective) commissioners will probably not accept increase requests and will consider the 2014 rates to be 2-year rates.
            • Another Problem
              We have seen a major move in physicians being directly employed by hospitals in the last few years. This hurts free enterprise and consumers because the physicians are told they have to refer to the hospitals lab, specialists, and therapists for rehab. In short, hospitals are controlling the referral patterns. This hurts the private practices. The prices go up without competition.
            • You are Right!
              You are correct. I am a small solo practicing physician. I have run my own practice for the past ten years. I open my own mail and often sit behind the front desk in my office to hear the exchanges between my office staff and patients. I am all for health reform and supported Obamacare UNTIL terrible things started to happen. As of January 2014, my patient volume has decreased by 35 to 40 % because the majority of my patients have been hit with increase premiums and plans the have awful deductibles and ridiculous copayments. BCBS has changed saddled millions of patient with deductibles instead of copayments that have to be met BEFORE the bills are paid. The average deductible is around 1000 to 4500 dollars and specialist copayments are very high now. My patients a blue collar workers such as bus drivers, school teachers, and government employees. They do not have this type of money and the patient that manage to come in complain about the high deductibles and do not follow up for follow upappointments when they received the bills from my office. These same patients have been hit with premium increases. As a result, doctors have sluggish visits and I can tell you that I am down by 50 % in office revenue. I will have to stop offering my staff insurance because I am excempt from the mandate. Right now, I pay 100% of my staff healthcare benefit, but business has been so terrible the first quarter that I will have to scrap health insurance. THe private insurance companies did not have to alter the insurance plans in this drastic fashion. The affordable care act is not affordable for patients and doctors! You will see physicians office closing due to a DECREASE in patient volume even though more people have insurance. The patents can not afford the bills related to deductible and physician office will suffer as a results. I spoke with my accountant today and confirmed my income is down 50% and I am still paying for over 200,000 in student loan debt payments each month. I was not for a single payer system but now I am. This is the only way. THe private insurance companies have found a way to screw Obamacare by changing the plans……I am very depressed right now. I have spoken to several physicians that have the same issue. We need to remove the private insurance industry out of healthcare period!
              • Doc G
                Interesting viewpoint- I've often wondered- Is there any way- either you, or any other doctor, for that matter, could just go insurance free? Just see patients on a cash only basis (like the old days) set your own rates, work out payments if need be, and basically be a totally independent practice? How much time does your staff spend now on insurance paperwork? Maybe if more people in the medical field did this, total costs would start to come down. People could still file insurance; they would just have to submit bills on their own, again, just like we used to do. It seems like after we stopped doing it that way is when the costs started going out of control.
              • What's the connection?
                JK, not sure why you referenced that article, I was pointing out a rather large flaw in the ACA regulations and the fact that it does not really include provisions that will control/reduce costs over time. Where were you going?
                • To Dr Obama
                  Sorry for overlooking your response here. I referenced the article about IU Health's 8 percent price increase because it showed that provider prices are not (not yet, anyway) being held down by the ACA. I thought that was a bit of evidence in support of the very last claim you made in your comment.

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