qotd: What does California’s 4.2% premium increase mean?

Los Angeles Times
July 31, 2014
Obamacare premiums to rise a modest 4.2% in 2015
By Stuart Pfeifer, Chad Terhune, Soumya Karlamangla

Defying an industry trend of double-digit rate hikes, California
officials said the more than 1.2 million consumers in the state-run
Obamacare insurance exchange can expect modest price increases of 4.2%
on average next year.

"We have changed the trend in healthcare costs," said Peter Lee, Covered
California's executive director. "This is good news for Californians."

State officials and insurers credited the strong turnout during the
first six-month enrollment window that ended in April for helping to
keep 2015 rates in check. But others cautioned it's still too early to
gauge the health law's impact, suggesting several factors may be
temporarily holding rates down in the individual market.

"We don't really know what the real cost of Obamacare is yet because
insurance companies are heavily subsidized for the first three years" of
the law's implementation, said Robert Laszewski, a healthcare consultant
in Virginia who has closely tracked the overhaul. "The insurance
companies essentially can't lose money."

California Insurance Commissioner Dave Jones said the modest uptick in
premiums was a positive sign, but he said insurers were likely motivated
by a November ballot initiative, Proposition 45, that would give his
office new authority to regulate health insurance rates.

"This is merely a pause in the double-digit rate increases we've seen
historically," Jones said.

Consumer Watchdog, the Santa Monica advocacy group pushing Proposition
45, said insurers held back this year to avoid that kind of voter backlash.

WellPoint Inc., Anthem Blue Cross' parent company, Kaiser and other
insurers have contributed more than $25 million to defeat the ballot
measure.

http://www.latimes.com/business/la-fi-obamacare-2015-rates-20140801-story.html

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Comment by Don McCanne

Before we discuss some of the possible reasons that the 2015 increase in
premiums for California's ACA exchange were held down to 4.2 percent, we
should mention the bad news that is not being covered by the media. We
are celebrating an artificially low increase that is still twice the
rate of inflation - 2.1 percent (Consumer Price Index, June 2014 -
Bureau of Labor Statistics), as workers continue to fall behind over the
last three decades of increasing income inequality.

Although ACA enthusiasts are touting success in controlling health
insurance premiums, there are many reasons why their celebration is
premature, but two stand out.

Proposition 45, which will be on the November ballot, would provide
authority to California's insurance commissioner to regulate health
insurance premiums. The last thing the insurers want to do is to anger
voters with high rate increases just before this election. The insurers
have already contributed over $25 million to defeat this measure.

The other important reason is that the insurers are still protected by
reinsurance and insurance rate corridors. In fact, the Obama
administration adjusted this coverage to be sure that the insurers were
fully protected again next year should they not receive enough premium
revenue to meet their expenses. They can't lose! Of course they are
going to come in with low bids when they are under the threat of voter
revolt.

And what about the next year when they no longer have protection against
losses? We already know the routine. "The patients enrolled in our plans
were older and sicker while the younger, healthier individuals were
covered by plans at work, or bought the cheap catastrophic plans, and
the new drugs that cost tens of thousands of dollars or more placed a
strain on our budgets, and our contingency reserves were depleted with
the market crash of 2015, and we've lost our rate flexibility with the
termination of government reinsurance, and…" Well, you know.

Although there are many other uncertainties as the implementation of ACA
plays out, one certainty that we can rely on is that insurers will be
requesting much larger premium increases for 2016, possibly double
digits. That would not be happening under a single payer national health
program.