By Erin Mershon, CQ Roll Call
May 2, 2016 -- Insurance companies are warning of premium increases this fall, which are certain to spark Republican attacks that the health care law doesn't provide affordable coverage. This year, in the midst of an election, Democrats set themselves up for a barrage of complaints.
Premiums typically increase every year due to a host of factors, including the demographics of the people covered, the rising costs of care and prescription drugs, and how well a company projected its costs the year before. But this year, in addition to all those factors, a big chunk of expected premium increases will come directly from provisions embedded in the 2010 federal health overhaul.
About 4 to 7 percent of any premium increase will be attributable solely to the expiration of protections for insurers through the so-called reinsurance program, according to Cori Uccello, a senior health fellow at the American Academy of Actuaries.
The health law provided the protections, along with help for insurers through two other programs, to minimize risks for insurers participating in a new system through the exchanges created by the law.
The 2017 expiration date for the reinsurance program could put a spotlight on premiums and affordability in the middle of the general election campaign. That would likely ratchet up political pressure on Democrats, who are gunning this year to retake the Senate and expand their footprint in the House.
Another boon for Republican candidates: the timing of open enrollment for the health marketplaces. The first day of that period, when most exchange customers will finally be able to confirm their actual premium rates for 2017, falls this year on Nov. 1—a week before Election Day. While insurers will finalize rates before then, the information isn't public in many jurisdictions until open enrollment begins.
"It's very bad timing. It's not going to be pretty," said Len Nichols, director of the Center for Health Policy Research and Ethics at George Mason University.
Lightning Rod
Even last summer, when the campaign season had barely begun and no expiring programs were at play, Republicans assaulted Democrats over proposed premium increases, calling them a sign that the federal health law had failed.
"Premiums have been a political lightning rod from the start, and I would expect no less this year," said Larry Levitt, senior vice president for special initiatives at the Kaiser Family Foundation. "Any reports of premium increases will immediately become talking points."
To be sure, health care hasn't been as central to this year's campaigns as in the last election cycle, as a recent Kaiser poll showed. But Bob Blendon, a Harvard public health professor who directs the university's opinion research program, said that won't stop Republicans, especially in local races where health care issues can resonate.
"In close races in the House and Senate, Republicans are going to try to say there's an advantage for really not having [Democrats] in power, or things could get worse," he said. "The lemon for the Democrats is that the law was called the Affordable Care Act. Republicans will say 'You should have solved that problem.'"
Expiring Protections
The potential rate increases, which will vary widely across the country, are attributable in part to the continued rise in health care costs, such as for prescription drugs. But another factor is the expiration this year of the reinsurance program and another known as the risk corridor program.
The reinsurance program will have the larger effect on premiums, according to several insurance company representatives and Uccello of the American Academy of Actuaries. The program, which is entirely funded by the private sector, redistributes money from health plans that had few high-cost enrollees to those with more costly consumers than expected. It aimed to stabilize the market for insurers who had little information about the new populations they were signing up to cover.
Uccello cautioned that although the expiration of reinsurance alone would account for a 4 to 7 percent increase in 2017 premiums, the program's payouts to insurers already had been declining for a couple of years.
"It has been already gradually decreasing, which has been putting increases into premiums," she said.
Anthem, Inc., the nation's second largest insurer, projected on an earnings call Wednesday a similar share of premium increases, about 5 to 6 percent, due to the reinsurance program expiration. Blue Cross Blue Shield Association officials also pointed to that program as a major factor in an anticipated increase.
The expiration of the risk corridor program, meanwhile, is unlikely to have such a sizable impact. That program redistributes funds from insurers who spent less than their targeted costs to those who overspent their targets.
But because of a law pushed by Republicans including Sen. Marco Rubio, R-Fla., that program was required to remain budget neutral—which limited the funds available to insurers who suffered losses. Many companies didn't plan for a redistribution when setting their 2016 premiums. Adjustments for that program's phase-out "already happened" in many cases, Uccello said.
Impact on Consumers
Democrats can hope that the expiration of reinsurance will be ameliorated by a change Congress made in last year's budget deal (PL 114-74). Premium rates could be held down somewhat because of a one-year reprieve from the health insurance tax, an excise tax on plans that was expected to bring in $100 billion over 10 years.
"The one-year suspension of the health insurance tax was an important step, partly because the cost savings go directly to consumers," said Clare Krusing, a spokeswoman for America's Health Insurance Plans (AHIP), which continues to lobby Congress to fully repeal the tax.
Ucello said that relief could reduce rates by 1 to 3 percent, so that the net impact of the expiration of the reinsurance program and the relief from the tax would still result in pressure pushing rates up.
The Department of Health and Human Services (HHS) is already emphasizing that even double-digit increases won't necessarily translate into premiums that high for most consumers.
Consumers can shop around and switch to lower-cost plans if their rates skyrocket—and many do, according to an administration report on last year's enrollment.
Consumers with income up to four times the federal poverty limit also can get tax credits to lower premiums. Those credits increase when premiums for benchmark plans rise, which can limit the impact on an enrollee's pocketbook.
And of course, the projected premium increases can be checked by state insurance commissioners through rate reviews. The process varies by state, but regulators in many regions can challenge or publicly highlight rates they feel are inappropriate and aren't supported by actuarial projections. The final rates may be lower than originally proposed. In some cases, regulators conversely might raise premiums to ensure that plans can cover all the costs of their customers.
"Marketplace consumers would do well to put little stock in initial rate filings," HHS spokesman Ben Wakana said in a statement. "Last year, the average cost of Marketplace coverage for people getting tax credits went from $102 to $106 per month, a 4% change, despite suggestions of 'double-digit price hikes.'"
Plans are finding their way in a marketplace that is still evolving—and premium prices reflect that uncertainty. UnitedHealth Group, despite higher-than-average premiums for its exchange offerings, suffered strong enough losses to justify a dramatic withdrawal from at least 26 of the 34 marketplaces in which it participated.
Anthem and Cigna were more optimistic about participation, though cautious about profits. Aetna, one of the country's largest exchange participants, is set to announce its earnings Thursday.
"Plans want to be able to offer coverage. They want to provide insurance to their current customers," said AHIP's Krusing. "But when you have a number of factors creating uncertainty, when you are facing limitations in how you can address underlying health care costs, those all impact the cost of coverage for consumers."