REPORT: What Is Driving Premium Increases In 2018?
The American Academy of Actuaries released a report Tuesday that offers key insights into the projected premium increases in 2018 for the Obamacare individual marketplace.
The report finds that premiums will increase for four main reasons in 2018, including: increasing medical costs, uncertainty in the marketplace regarding Obamacare subsidy payments, enforcement of the individual mandate and a shortened open enrollment period.
Insurance companies have proposed premium increases as high as 50 percent for 2018 Obamacare plans, with the vast majority of providers planning double-digit increases across the country. (RELATED: Insurance Companies Look To Dramatically Increase Premiums In 2018)
1) Increasing Medical Costs Trend
“Projected medical trend in 2018 is expected to be consistent with 2017 medical trend; estimates are in the 5 percent to 8 percent range,” according to the report.
The majority of premium dollars are used to cover medical overhead costs, like the cost of providing medical services and the cost of medical supplies. It follows that, as medical costs continue to rise between 5 and 8 percent in 2018, so too will premiums.
Although there is research to show that the U.S. is slated to enter a period of medical cost equilibrium, where the forces that drive up health costs are offset by a demand for value-based health care system, according to a report released to The Daily Caller News Foundation in June by PriceWaterhouseCoopers Health Research Institute (PwC).
PwC projects the medical cost trend to be 6.5 percent in 2017, a growth rate nearly half that of 2007.
“Single-digit growth is the now the new normal,” PwC Health Research Institute leader Ben Isgur told TheDCNF. “No longer will we see huge fluctuations.”
While the news could help lower uncertainty for insurance and medical providers for future premium calculations, it could still mean that premiums can be expected to increase year to year.
2) Uncertainty Surrounding Legislative And Regulatory Changes To Obamacare
Insurance providers are raising premiums for two main reasons: Companies are continuously finding it difficult to enroll enough healthy individuals in the marketplace to offset the costs and they face a great deal of uncertainty as to whether or not the Trump administration and Republican leadership in Congress will continue paying out Obamacare subsidies, like cost-sharing reductions (CSRs).
Obamacare requires that insurance companies pay out CSRs to eligible low-to-moderate income individuals who have obtained plans on the state exchanges. Obamacare insurance exchanges stratify health coverage options into tiers, which are defined based on their respective cost to insurers versus the consumer. The overwhelming majority of consumers–85 percent–have Silver plans.
Silver plans have an actuarial value (AV) of 70 percent, meaning that the insurer covers 70 percent of all health care costs, while enrollees pay the remaining 30 percent through deductibles, copays and coinsurance.
Due to the uncertainty regarding Obamacare subsidies, actuaries report that “some state regulators have allowed or even required insurers to build CSR costs into their premiums.”
If states levied the increases solely on silver plans, “premium increases could average nearly 20 percent, over and above premium increases due to medical inflation and other factors.”
3) Enforcement Of Obamacare’s Individual Mandate
Under Obamacare, if you have the means to purchase health insurance but choose not to do so, you are required to pay a fee called the individual shared responsibility payment. In 2017, that fee is calculated either as a percentage of one’s household income, or per person (individuals pay whichever is higher).
The Senate bill to repeal major portions of Obamacare takes out the individual mandate and replaces it with a penalty for people who go without insurance. If the Senate passes the bill, people who choose to go without insurance for over 63 days will have a six-month waiting period imposed upon them before they can reenroll in the individual insurance market.
“A weakening or elimination of the individual mandate would be expected to increase premiums as lower-cost individuals would be more likely to forgo coverage,” the report finds.
4) Shortened Open Enrollment Period
In 2018, Obamacare’s open enrollment period is shortened by nearly 45 days.
Under the current system, insurers collect less premiums from those that enroll after the open enrollment period. With a shorter period for enrollment, insurance providers could have to increase premiums to account for uncertainty or any uncalculated losses stemming from unknown enrollment numbers.
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