2018 premium increases: three things to know

The individual market premium increases are out for Washington State, and they aren’t pretty.

Of the plans still providing coverage in the individual market in select counties, the requested premium increases range from 9.7% to 38.49%.

These are shockingly high, particularly in a year when – according to the original vision of the ACA – things were finally supposed to be leveling off.

However, this isn’t a year working according to the “original vision of the ACA.”  Everything is in flux, and so these rate requests probably reflect a number of things beyond just the straight underwriting of the individual market risk.

Here are three things I think may be going on here and which should be kept in mind.

  1.  Political risk.  The damage the Trump administration is doing to the ACA cannot be understated. By not being clear about whether the cost sharing reductions will be funded or not, the Trump administration has not created a level of predictability for insurance carriers that is of fundamental importance.  The more things are unpredictable for insurers, particularly when money is directly involved (CSRs), the greater the potential volatility of financial outcomes in 2018.  The greater that volatility, the more financial risk carriers take.  The more risk they take, the higher the premiums will be.  These rates reflect, in part, political risk created by the Trump administration and for which carriers must add rate increases to accommodate.
  2. HIPAA:  Under the Health Insurance Portability and Accountability Act (HIPAA) passed more than 20 years ago, if a health plan voluntarily leaves a market segment in a state – like Washington’s individual market – they cannot re-enter for a period of 5 years.  If you’re a carrier that wants to sit out this year of political tumult, you may not want to leave the market for 5 years. If you sit out one year, you have to sit out five.  Instead, you can A) reduce the number of counties you serve, and B) dramatically increase the pricing for the products you offer.  That will limit, in practice, the underwriting exposure carriers have, dodging (to varying degrees) the financial threats while not being forced out of the market for 5 years under HIPAA.  That may be some of what we see here.
  3. Providers are re-committing to fee for service:  No one really wants to talk publicly about it, but lots of the energy that some providers showed in recent years for value-based contracting has largely dissipated.  This doesn’t match the rhetoric, of course, but across the board, providers are limiting their own exposure to taking risk, shying away from investing in value-based systems, and moving back to straight fee for service contracts.  On the one hand, every communications shop we reach out to will probably tell us the opposite (maybe not all), relying on the tried and true talking point of value-based care.  On the other hand, why should providers keep moving in this direction?  If insurers are hedging their risk – and their whole industry exists to manage risk – then why should providers be moving towards value and risk when the rest of the industry isn’t?  So, in some ways, we are hearing that we have already moved back to the pre-ACA days of FFS increases at large provider organizations that are well into double digits.

Taken together, I think these three trends help explain what we see in the topline premium increases.  Some in the media or stakeholder community will point to rising health plan profits, a legitimate observation, but the full picture probably includes the strategic considerations I outline here.