Planned Rate Hikes Presage a Health Insurance ‘Death Spiral’

The Wall Street Journal has reviewed health plans’ rate filings for 2016 in Obamacare exchanges:

In New Mexico, market leader Health Care Service Corp. is asking for an average jump of 51.6% in premiums for 2016. The biggest insurer in Tennessee, BlueCross BlueShield of Tennessee, has requested an average 36.3% increase. In Maryland, market leader CareFirst BlueCross BlueShield wants to raise rates 30.4% across its products. Moda Health, the largest insurer on the Oregon health exchange, seeks an average boost of around 25%.

All of them cite high medical costs incurred by people newly enrolled under the Affordable Care Act. (Louise Radnofsky, “Health Insurers Seek Healthy Rate Boosts,” May 21, 2015)

The article also notes that Insurance Commissioners in some states have the power to roll back rates hiked too high (and the U.S. Secretary of Health & Human Services also asserts a similar power, although there is no legal basis for it). It is unlikely that Insurance Commissioners can protect people from these rate hikes: Excessive rollbacks will merely cause health plans to exit the market, which would be catastrophic for Obamacare’s political future.

Readers of this blog knew that this death spiral was coming. What is remarkable is that it is happening now. Things must be worse than insurers are disclosing to make them jack rates so high, so soon.

Think about it: Obamacare is the best possible scenario for health insurers. Obamacare is still very much at risk from the Supreme Court’s decision in King v. Burwell and Republican politicians who remain united in pledging to repeal and replace it with patient-centered health reform.

If anything, health plans should want to move public opinion in favor of Obamacare by keeping rate hikes low. Indeed, they should (collectively) be prepared to lose money in exchanges until Obamacare is secure. (The exchanges are still a small part of their book of business. They can subsidize losses in exchanges for a while without risking their solvency.)

A lot of the cost of the rate hikes will be borne by taxpayers instead of enrollees, because Obamacare’s tax credits to insurers operating in exchanges are based on the benchmark (second cheapest silver plan) and limited by beneficiaries’ household income. Nevertheless, that is also hardly good news for Obamacare’s political future, either.

Announcing these rate hikes in the summer of 2015 (and, likely, the summer of 2016) indicates that health plans’ experience in Obamacare exchanges is painfully expensive.

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For the pivotal alternative to Obamacare, please see the Independent Institute’s new book: A Better Choice: Healthcare Solutions for America, by John C. Goodman.