The New York Times reported last week on the Obama administration, in an effort “to avoid another political uproar over the Affordable Care Act,” urging state insurance commissioners to hold down premium increases for 2016. The Times cited a letter that Kevin Counihan, who oversees the federal insurance exchanges, sent to state commissioners last month asking states “to carefully consider as you make your final rate decisions” several factors the administration said would contribute to more moderate cost increases than those already experienced.
But trends in many states appear likely to force premiums higher. Continued low enrollment after the 2015 open-enrollment season means that some insurers still face a group of enrollees who are older and sicker than their initial projections. One report out this summer by pharmaceutical benefits manager Express Scripts indicated that people who enrolled in exchange plans have higher prescription-drug costs than participants in other health insurance plans, including greater use of costly new treatments for diseases such as Hepatitis C. So some carriers may seek higher premiums to reflect their rising costs.
Premium increases are obviously unpopular, but state regulators must protect insurers–an insolvent insurer cannot provide financial protection to anyone. The Oregonian reported in June: “While some insurers proposed rates similar to or better than this year’s, officials are ordering them to be raised—saying they need to close a sizable gap between what insurers have collected and what they spend on claims.” One insurer that proposed a rate decrease for next year, Kaiser Health Plan of the Northwest, was forced to raise premiums by 8.3%. A carrier that proposed a 9% increase ended up with a 34.8% hike in rates. The commissioner’s office forced these adjustments to ensure that carriers do not pay out more in claims than they generate in premiums.
One could see Mr. Counihan’s letter as the opening stages of a blame game over premiums. Of course, rising health costs, anemic enrollment in plans administered through the insurance exchanges, and unpopular product design are not the fault of state insurance commissioners. And there are risks to trying to dictate outcomes to states, including that state officials might be distracted from their focus on preserving carriers’ solvency if pressed by federal officials more focused on achieving politically desirable outcomes.
This post was originally published at the Wall Street Journal Think Tank blog.