• Anthem says its rivals charge unsustainably low rates
  • Fourth-quarter profit falls as medical costs rise in ACA plans

Anthem Inc., the second-largest U.S. health insurer by membership, said premiums for Obamacare insurance probably will go up next year.

Anthem is eking out a small profit from selling policies to individuals under the Affordable Care Act. Many of its rivals aren’t, though, which means prices have to go up, the company told investors and analysts on Wednesday.

Other insurers are charging premiums that are “still well below what we think appropriate rates are for a sustainable environment,” Chief Financial Officer Wayne DeVeydt said on a conference call with analysts. “Our price point isn’t wrong, as much as others need to strengthen their price point.”

Climbing costs for health insurance would come at a bad time for Democrats who’ve embraced one of President Barack Obama’s key policy achievements. Consumers will start shopping for health insurance about the time of November’s presidential election, meaning they’ll find out about a potential hit to their pocketbooks just as they’re choosing a candidate to vote for.

Premiums for mid-level silver Obamacare plans increased 11 percent on average for this year, after climbing 7 percent for 2015, according to McKinsey & Co. More than 80 percent of Obamacare customers get government subsidies to help them buy their policies, cushioning the effect of higher rates.

Higher Costs

Anthem sells policies under the Blue Cross and Blue Shield brand in 14 states. About 791,000 of the insurer’s 38.6 million members had individual Obamacare plans at the end of the year, and those customers were the main drivers of increased medical spending and lower fourth-quarter earnings. Anthem’s adjusted profit fell 41 percent to $305.8 million in the period, and its shares dropped 3.7 percent to $132.68 at 2:25 p.m. in New York.

Other insurers have fared worse with their Obamacare businesses. UnitedHealth Group Inc., for instance, said it lost almost half a billion dollars on ACA plans in 2015, and expects even more red ink this year. About half of the nonprofit insurers created to sell policies under Obamacare have failed, in part because they didn’t charge enough.

Those struggles are a threat to the viability of the health-care law, which relies on private insurers to sell the policies that have helped expand coverage. The pace of enrollment in the ACA’s federal and state exchanges also has been slower than Anthem and the U.S. government forecast. Anthem said it’s seen some early signs of a pickup this year, though it’s waiting to find out how many people are paying their premiums by the end of this month.

Some insurers are starting to feel the pain from charging too little for their health insurance policies and are beginning to boost rates, according to Anthem, whose higher prices may have contributed to its lower-than-expected sign-ups.

“We are starting to see individuals recognize problems in their books,” DeVeydt said. “They are starting to strengthen their pricing quite meaningfully.”

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