Covered California’s announcement about anticipated rate increases for the 2017 rate year is reverberating across the political landscape of health care reform. The proposed increases are yet to be reviewed by state regulators, but the possibility of an average rise of 13.2% stands in stark contrast to the first two years of single-digit increases for Exchange coverage in California (under 5% per year).
Some consumers who choose to keep their current coverage will see a significant increase in their premium for 2017, while others will see a more modest increase, depending on where they live and what insurance plan they have.
Premium rates from Covered California’s 2017 rate booklet reveal that increases are expected around the state. Northern California’s 2016 premiums averaged $384 increasing to $453 for 2017 – an increase of 18%, while Southern California rates will increase an average of 17%, from $296 to $346.
However, average increases vary substantially among the state’s 19 pricing regions. For example, in pricing region 10, which includes San Joaquin, Stanislaus, Merced, Mariposa and Tulare counties, the Exchange announced an 8.4% average increase. In pricing region 9, which includes Monterey, San Benito and Santa Cruz, the projected average increase is 28.6%. San Francisco’s lowest-priced bronze plan is expected to increase by an average of 8.3%, whereas in Alameda County, the lowest-priced bronze increased by only 2.3%.
Premiums for the second lowest-cost silver plan, the benchmark for federal premium subsidies for low-income enrollees, are expected to increase an average of 8.1% statewide, with comparable geographic variation. Even with subsidies, a 40-year-old with income at 200% of the federal poverty level will pay an additional $132 on average for a silver plan in pricing region 9 while in region 10, a similar person would only pay an average of $9 more per month for the silver plan.
During its 2017 rates announcement, Covered California identified several factors that potentially contributed to the increases, including:
Overall increased medical costs, including the steep rise in prescription drug costs over the last decade.
- The sunset of two temporary, federally-administered programs aimed at stabilizing prices in the early years of the ACA: reinsurance and risk corridors. The federally administered reinsurance program provides payment to plans that enroll more expensive, high-utilizing enrollees. The risk corridors program limited insurers’ losses and gains to specified amounts.
- Impacts from the special enrollment provisions in the ACA. Special enrollment allows individuals to sign up for coverage outside of the annual enrollment when they experience life changes such as job losses, marriage or divorce. Covered California health plans report that consumers signing up during special enrollment have higher health care costs, which could mean that some consumers are waiting until they get sick or need health care to sign up for coverage.
- Pent-up demand for health care services from newly insured purchasers. Many Covered California enrollees were previously uninsured, including many consumers who before the ACA were denied coverage due to pre-existing conditions. Prior to gaining coverage, they may have delayed needed health care.
Given many of these factors, Covered California dubbed 2017 a “transition year.” According to Covered California, this transition reflects continuing market adjustment to the new guarantee of coverage for everyone regardless of age, health status or claims history, as well other coverage reforms, such as expanded benefits and minimum coverage protections.
In announcing the rates, Covered California also emphasized the following:
Most Exchange enrollees (about 90%) receive subsidies that reduce monthly premium costs, thus partly shielding them from the increases. Because federal subsidies are based on the cost of the second-lowest silver plan in each region, as these costs increase, subsidy amounts will also increase.
- Nearly 80% of Covered California enrollees will pay less than they are paying now, or see their rates go up by no more than 5%, if they shop and buy the lowest-cost plan at the same benefit level. For example, even in region 9 with the highest average rate increase (28.6%), the lowest-price bronze plan decreased (-5.1%) and the lowest-price silver plan increased only slightly (0.2%).
- Despite the 2017 increase in premiums, the three-year average increase for Covered California health plans is 7%. By comparison, the three-year average increase for individual premiums just prior to the ACA 2011-2013 was 9%.[i]
The Context and the Challenge
For families that are facing steep premium increases, it will do little to reduce the sting of those increases to point out the many ways in which the reformed individual market, and Covered California as a brand-new state marketplace, are dramatic improvements to the pre-ACA health insurance market.
For those struggling to pay for coverage and care now, it is likely little comfort to remind them that the pre-ACA individual market excluded hundreds of thousands of their fellow Californians who needed care the most but were denied coverage because of pre-existing health conditions or illness, or to remind them that at any time they could have also faced health challenges that left them excluded.
Newly insured Californians may not have directly experienced the pre-ACA double- digit rate increases for individual insurance or may never have been forced to keep their existing plan when prices rose without being able to shop other carriers. Pre-ACA, dramatic premium increases were imposed with little notice and no explanation, regulatory review or justification.
For consumers experiencing sticker shock, therefore, this need not be a conversation about the overall benefits and impacts of the ACA. Rather one urgent priority is to ensure that consumers have access to all of the information, assistance and support they need to shop and compare products, as well as assistance with signing up for and maximizing the subsidies available to help reduce premium and out-of-pocket costs.
While the ACA and the establishment of Covered California as a statewide health insurance marketplace have made comparing coverage options much easier, consumers still face a dizzying array of complex choices, eligibility rules and application challenges that must be remedied so they can choose the most affordable, appropriate coverage for them and their families. Covered California, its enrollment partners, community-based enrollers, health care providers, consumer advocates and the media must re-double efforts to educate, inform and assist individuals and families with these complex decisions.
For those of us engaged in monitoring and evaluating the successes and failures of the ACA, context matters. We have an obligation to focus on both the dramatic market improvements under the ACA as well as to confront the remaining challenges.
The ACA has given us many tools to accomplish resolving the remaining challenges, which did not exist before its passage. The increased transparency of rates, costs and health plan spending offers concrete ways to evaluate and dissect health plan premiums and spending. Under the ACA medical-loss ratio requirements, health plan profits and administrative costs are regulated. Health plans file and regulators review premium rate increases to determine whether the proposed rates are justified or not. Covered California conducts intense price negotiations and collects information about health care costs, access and quality, yielding more information than we have ever had about the health care coverage landscape.
We must hold Covered California accountable to continue transparent reporting of its contracting process and to actively negotiate on behalf of its enrollees to offer the best and highest quality coverage choices, at the lowest prices possible. We must hold state regulators accountable to seriously scrutinize health plan rate increases and publicly report findings and recommendations as a way to promote competition and pricing discipline. We must consider and explore all opportunities to lower the share of premium and out-of-pocket costs for low and moderate-income consumers.
Finally, we must actively embrace the challenge of taking health reform to the next most crucial level – reducing the underlying costs of health care and reforming the health care delivery system to ensure it provides high-value, quality care that effectively meets the needs of patients.
Co-written by Marina Acosta and Deborah Kelch.
 Wilson, K. Individual Health Insurance Premium Growth in California. California Health Care Foundation. July 2016. Available at: http://www.chcf.org/publications/2015/11/individual-premiums-growth-california