Increases leave some questioning if Obamacare headed for 'death spiral'
The hefty increases Pennsylvania has approved for next year's individual health plans provide new fodder for Obamacare critics who say the federal law's insurance marketplace is bound to fail.
The state's Insurance Department last week approved increases averaging 32.5 percent for the 2017 plans, making Pennsylvania one of 14 states so far to increase individual rates by an average of more than 30 percent, according to data on ACAsignups.net, a site that tracks enrollment and pricing.
The increases have renewed debate about whether the market is heading toward what experts call a “death spiral,” a scenario in which high premiums cause all but the sickest people to leave the market, necessitating even larger increases to cover insurers' costs until insurance becomes unaffordable.
“I think we're in it. I just think it's slow,” said Jeffrey Anderson, a senior fellow at the Hudson Institute, a conservative Washington, D.C.-based think tank.
To remain stable, the market needs enough healthy people — often the youngest — paying premiums to offset the costs of the sickest, who are usually older. The penalty for going without insurance is $695 per year or 2.5 percent of income, whichever is greater. Anderson said he doubts the $695 penalty, which equates to about $58 per month, is enough to spur young people to buy health insurance.
President Obama touched on the need for young people to balance the risk pool during a speech Thursday in Florida, suggesting the government should increase tax credits that subsidize the plans and take other steps to improve the market's viability, including selling a government or “public” plan in areas without insurer competition.
Obama referred to the premium increases as growing pains of the law. He said insurers, who had little population-specific information upon which to base prices, set premiums too low in some states and are catching up to market realities.
Pittsburgh-based insurer Highmark Inc. set some of the lowest premiums in the country for the market's first year and has lost more than $800 million on the plans since. Pennsylvania Insurance Commissioner Teresa Miller approved increases of as much as 55 percent for some Highmark plans in what she said she hoped would be a “one-time correction” that would keep insurers from abandoning the market.
Cynthia Cox, associate director of health reform and private insurance at Washington-based health policy think tank Kaiser Family Foundation, called the chance of a death spiral in the marketplace “very low.”
Cox noted that eight in 10 people who buy insurance on the exchange at healthcare.gov receive subsidies in the form of tax credits. The subsidies increase as premiums increase, shielding policyholders from the full increases approved by states and making them more likely to keep their insurance, she said. The increases apply to individual plans on the exchange as well as those that insurers sell directly to consumers off the exchange. The increases don't apply to employer-sponsored plans, the most common type of insurance.
The concern, Cox said, is for people who are buying individual plans off the exchange.
While subsidies soften the blow for the about 10 million people with exchange plans, another 6.9 million people with off-exchange plans face the full increases approved by states. Those people, who likely are richer and healthier, are part of the same risk pools as the exchange population. Their continued participation will be important to the market's viability, Cox and Anderson said.
Many might not be aware they are eligible for subsidies, Cox said.
“Now that premiums are going up, I think it's important for people to reassess,” she said.
The Department of Health and Human Services has estimated 2.5 million people with off-exchange plans have incomes that might qualify them for the tax credits. The agency last week released predictions estimating a modest marketplace gain of as many as about 11.4 million people, on average, enrolled per month.
The market's open enrollment period, during which people can sign up or switch plans, runs from Nov. 1 to Jan. 31. At least 40 states had approved final rates for 2017 as of Friday. The 13 other states joining Pennsylvania with average increases of 30 percent or more were Alabama, Arizona, Delaware, Georgia, Illinois, Kansas, Minnesota, Montana, Nebraska, Oklahoma, South Dakota, Tennessee and Utah, according to ACAsignups.net.
The average increase across the 40 states was about 25 percent. State-by-state increases reached as high as 37 percent for Kansas, 45 percent for Illinois, 48 percent for Montana, 56 percent for Tennessee, 57 percent for Arizona and Minnesota, and 76 percent for Oklahoma, according to the site.
Miller said she approved rates in Pennsylvania that were higher than she would have liked to keep insurers from leaving the market, saying it is more important to preserve access than to contain rates.
She said 16 counties in the state are down to only one carrier after Aetna and United-Healthcare exited the market, including 11 one-insurer counties on the western side of the state.
Insurers and analysts have proposed a range of fixes for the market, some of which — including the public option — have been supported by Democratic presidential nominee Hillary Clinton. Donald Trump, the Republican nominee, has said he supports repealing the law.
Wes Venteicher is a Tribune-Review staff writer. Reach him at 412-380-5676 or email@example.com.