Double-Digit Premium Hike Requests Signal Start of Obamacare ‘Death Spiral’
By: Barbara Hollingsworth (CBS News) July 2015
Obamacare is exhibiting early signs of a “death spiral” as hundreds of insurance plans listed on the federally-run exchanges in 37 states and the District of Columbia request double-digit premium increases for 2016, says David Hogberg, a health care analyst and senior fellow at the National Center for Public Policy Research (NCPPR).
A “death spiral” – which is the insurance pool equivalent of a bankruptcy – occurs when rising premiums force younger, healthier people to drop their insurance coverage due to the increased cost. But their exodus leaves the remaining “risk pool” older, sicker and more expensive to insure than before, necessitating further rate hikes.
Thirteen percent of the people who signed up for Obamacare in 2015 have already been dropped from coverage because many of them failed to pay their share of the subsidized premiums, The New York Times reported.
And that’s before the premiums on many policies are due to skyrocket next year.
In an Oct. 4, 2008 speech in Newport News, Va., then-Sen. Barack Obama promised that if elected president, he would reform the nation’s health care system, adding that “we’ll start by reducing premiums by as much as $2,500 per family.”
But in 2016, six years after President Obama signed the Affordable Care Act (ACA) into law, Obamacare premiums for hundreds of thousands of Americans will be going up, not down.
Under the Affordable Care Act, state insurance regulators have until August to decide whether to approve or deny steep premium hikes for next year, which are inducing “sticker shock” even after the U.S. Supreme Court ruled that those enrolled in the federal exchanges were eligible for government subsidies.
“Unfortunately, those polices are on borrowed time,” Hogberg noted. “Eventually, older and sicker customers will purchase those policies, the rates will go up, and the young and healthy will flee the exchanges. At that point the death spiral will be in full gear. The insurance rate hikes for 2016 are just the beginning.”
“In the end, the exchanges are not sustainable, and free-market based reform of our health care system will be necessary,” Hogberg predicted.
According to HealthCare.gov, “the Affordable Care Act (ACA) requires that insurers planning to significantly increase plan premiums submit their rates to either the state or federal government for review. The threshold for this requirement is 10%.”
NCPPR found that 231 plans listed on Obamacare exchanges in 37 states and the District of Columbia have requested double-digit premium hikes of at least 10 percent for 2016, nearly double the number of plans (121) that did so for 2015.
Another 126 plans want to raise their rates by 20 percent or more in 2016, compared to the 21 plans that made a similar request in 2015.
For example, eight plans listed on the District of Columbia exchange have requested 2016 premium hikes ranging from 10.13% for Group Hospitalization and Medical Services, Inc.’s (GHMSI) BluePreferred Multi-State Plan- Individual to 20.44% for the company’s BluePreferred Multi-State Plan- Small Group policies.
GHMSI cites “projected increases in medical and pharmacy claims due to cost and utilization trend impacts as well as change in projected pool morbidity” as reasons for raising its premiums.
But some requested rate hikes are much higher.
On April 13, Aetna Life Insurance Co. submitted a request for a 59.71% premium hike for its Aetna Fee for Service-Small Group plan in Virginia, effective Jan. 1, 2016. This plan is one of 38 that are seeking premium hikes of more than 40 percent for 2016 compared to the zero who made such requests in 2015, according to NCPPR.
“Medical costs are going up and we are changing our rates to reflect this increase,” the company said in its filing, adding that “several requirements related to the Affordable Care Act (ACA) also impact these rates.”
A 55.83% rate hike increase was also submitted by Blue Cross Blue Shield of Minnesota for its “non-grandfathered individual risk pool” affecting 171,000 policy holders.
“In 2014, the ratio of claims to revenue received (excluding potential federal risk corridor payments) exceeded 115% and resulted in an operating loss in excess of $135 million,” the company explained in its filing.
“High claims trends for the first quarter of 2015 reflect an acceleration in costs, suggesting an extremely low probability of lower claims for the balance of 2015. Our responsibility to set plan year 2016 rates at levels that cover all anticipated costs will result in significant price adjustments for all 2016 individual reformed products.”
Drew Altman, president and CEO of the Kaiser Family Foundation, noted in The Wall Street Journal that instead of decreasing health care spending, as Obama promised ACA would do, it is “picking up speed.”
He added that “greater use of health services as well as more people covered by the ACA appear to be responsible for most of the increase.” The double-digit premium requests for 2016 reflect insurers’ belief that this trend will continue next year.
In January 2014, CNSNews.com asked economist John Goodman, former president of the National Center for Policy Analysis, how Americans would know if Obamacare enters a “death spiral.”
“There won’t be any neon signs that say ‘Death Spiral Underway,’ but what you’ll see is premiums keep rising,” he replied. “And if premiums keep rising, then fewer healthy people will buy in and we may get to a point where you need government subsidies to prop the whole thing up.”
