Obamacare's War of Leaks
The Obama administration has said it expects premium increases for health insurance next year to be considerably slower than the pace before implementation of the Affordable Care Act. That's not what insurance industry executives told the Hill:
Some insurers initially underpriced their policies to begin with, expecting to raise rates in the second year.
Others, especially in larger states, will continue to hold rates low in order to remain competitive.
But insurance officials are quick to emphasize that any spikes would be a consequence of delays and changes in ObamaCare's rollout.
They point out that the administration, after a massive public outcry, eased their policies to allow people to keep their old health plans. That kept some healthy people in place, instead of making them jump into the new exchanges.
Federal health officials have also limited the amount of money the government can spend to help insurers cover the cost of new, sick patients.
Perhaps most important, insurers have been disappointed that young people only make up about one-quarter of the enrollees in plans through the insurance exchanges, according to public figures that were released earlier this year. That ratio might change in the weeks ahead because the administration anticipates many more people in their 20s and 30s will sign up close to the March 31 enrollment deadline. Many insurers, however, don't share that optimism.
These factors will have the unintended consequence of raising rates, sources said.
"We're exasperated," said the senior insurance official. "All of these major delays on very significant portions of the law are going to change what it's going to cost."
One executive, described as being "from a populous swing state," expects his company to triple the rates on next year's exchange policies.
Time to freak out about a death spiral? Not yet. Here's some reason for caution:
1) All insurance is local. We've spent a lot of time talking about whether enrollment will get to the 6-7 million the administration projected. In some ways that's much less relevant than what is happening at the state or county level, which is the level at which policies are sold. Some places will have a very small or very sick pool of customers for exchange policies, and those places will have huge increases in their policy costs. Others will have relatively large, robust pools, and the price increases in those areas will be less drastic.
We should be worried if one insurer in a populous swing state is planning to triple the price of his exchange policies. But you can't extrapolate that nationwide -- and the Hill won't have spoken to executives from more than a handful of companies.
2) The demographics could still improve, at least a bit. Yesterday, I argued that it's close to mathematically impossible for the exchanges to reach their original demographic projections. But it is mathematically possible for them to do better than 25 percent, and they may yet. If I had to guess, I'd expect that the folks waiting until March 30 to choose a policy are disproportionately young.
3) Insurance executives have every incentive to be as alarmist as possible. The administration and the insurers are now engaged in a lengthy negotiation about what you might call "The Obamacare Exchange Rescue Package of 2014." In response to public outcry, the administration has made a bunch of changes to the rules -- allowing people with "grandfathered" plans, for instance, to keep their policies. Those rule changes are going to cost the insurers a considerable sum. So the administration is proposing more rule changes, this time to funnel money to the insurers.
The insurance industry would like the funnel to be as big as possible. One way to encourage this is to tell reporters that you're planning to triple policy premiums in "a populous swing state" -- during an election year.
I'm not saying that they are lying. I'm just saying that when we read these stories, we should always be conscious that these leaks are part of a huge ongoing negotiation to which most of us aren't privy. So we always need to consider the strategic aspect of these sorts of leaks.
4) The administration, and local regulators, are going to train the big guns on any insurer that increases rates too much. They won't necessarily succeed in keeping increases small. Insurers, however, may not get the rate increase they're planning.
All that said, this is obviously not good news. However strategic these leaks might be, they didn't come out of nowhere. We won't know how serious a threat this is until actual rate increases come out this spring.
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Megan McArdle writes about economics, business and public policy for Bloomberg View. Follow her on Twitter at @asymmetricinfo.
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