Health Care Premium Uncertainty - What Lies Ahead for American Consumers?

While Washington self-implodes over the health care issue, a brief analysis by Kurt Giesa at Oliver Wyman Health summarizes the factors behind potential rate increases across the U.S. health care insurance sector.  Here is a brief look at the problem that will face health care consumers in 2018.

The analysis by Oliver Wyman suggests that up to two-thirds of the health insurance rate increases in 2018 are due to two factors:

1.) The uncertainty regarding continued funding of the cost-sharing reduction (CSR) payments:

Obamacare's Cost-Sharing Reduction subsidies were implemented to lower the out-of-pocket costs  for Silver plans purchased on the Health Insurance Marketplace with the size of the subsidy varying with income level.  For instance, for those households making between 100 percent and 250 percent of the Federal Poverty Level, CSR subsidies lower coinsurance, lower copay amounts and lower the maximum amount that the affected household will pay in out-of-pocket expenses by raising the actuarial value of the plan.

Here are some examples with varying household incomes (as a percentage of the Federal Poverty Level or FPL):

- 100-200 percent of FPL, out-of-pocket limit won’t be more than $2,250 for an individual  or be more than $4,500 for a family.

- 200-250 percent of FPL, out-of-pocket limit won’t be more than $5,200 for an individual or be more than $10,400 for a family.

More than 250% percent of FPL, out-of-pocket limit won’t be more than $6,600 for an individual or be more than $13,200 for a family.

2.) The impact of the relaxation of the individual mandate and how it will impact enrolment and risk pools:

According to the individual shared responsibility provision of Obamacare, each member of a family unit must have at least one of the following over the 12 month tax period:

- Have qualifying health coverage called minimum essential coverage

- Qualify for a health coverage exemption

- Make a shared responsibility payment with your federal income tax return for the months that you did not have coverage or an exemption.

Under proposed changes, enforcement of the individual mandate could end, changing the system that currently allows insurers to average out the higher-risk policy holders.

Adjustments in health care insurance premiums are calculated by actuaries on an annual basis, taking into account the risk of expected and unexpected occurrences like a severe influenza season and a higher than normal number of large claims.  For the 2018 year, actuaries are facing a perfect storm due to the unknown issues associated with potential changes to the Affordable Care Act under the Trump Administration.  Modelling by the author suggests that rate increases could well range between 28 and 40 percent with two-thirds of those increases related to the uncertainty around CSR payments and the lack of enforcement of the individual mandate as noted above.

Here is a graphic showing how these two issues will contribute to the anticipated health care insurance premium increases in 2018:

As you can see, only 5 to 8 percent of the premium increases in 2018 are related to the cost of care (i.e. the increase in medical costs), a small part of the overall projected increase.  Note, however, that the increase in medical costs is roughly 2.5 to 4 times the official inflation rate.  Non-enforcement of the Obamacare individual mandate could contribute 9 percent to premium increases and the lack of funding for Cost Sharing Reduction subsidies could add between 11 and 20 percent to premiums.  We are already seeing signs of this:

1.) North Carolina - the state's largest insurer is warning its Obamacare policy holders that it may have to hike rates by more than 20 percent in 2018, the second year in a row that premiums have risen by 20 percent plus.  It will "only" need to raise premiums by 8.8 percent if Cost Sharing Reduction subsidies for low income enrolled are funded by Washington. 

2.) Pennsylvania - the state's Insurance Commissioner Teresa Miller warns that the five insurers that sell plans in the state will have to raise premiums by 36.3 percent if the individual mandate is repealed and Cost-Sharing Reduction subsidies are not paid.  It will "only" need to raise premiums by 8.8 percent if Washington changes nothing.

I like that - an increase of only 8.8 percent in our less than 2 percent inflation world. 

With Congress fiddling while the health care system burns, this analysis clearly shows who is going to pay for all of this health care system uncertainty - Main Street Americans.  Why should we be surprised?