Steep Obamacare Insurance Premium Hikes Indicate ‘Death Spiral’ Has Begun

by John R. Graham

Source: The Heartland Institute

The Wall Street Journalreports major insurers in some states are proposing hefty rate boosts for plans sold under Obamacare, setting the stage for an intense debate this summer over the law’s impact.

Here are some of the health plans’ rate filings in Obamacare exchanges for 2016.

In New Mexico, market leader Health Care Service Corp. is asking for an average jump of 51.6 percent in premiums for 2016. The biggest insurer in Tennessee, BlueCross BlueShield of Tennessee, has requested a 36.3 percent increase, on average, for its plans. In Maryland, market leader CareFirst BlueCross BlueShield wants to raise rates 30.4 percent across its products. Moda Health, the largest insurer on the Oregon health exchange, seeks an average boost of around 25 percent.

Health insurance companies cite high medical costs incurred by people newly enrolled under the Affordable Care Act.

The Journal’s article notes insurance commissioners in some states have the power to roll back rates if they judge them to be too high. The U.S. Secretary of Health and Human Services also claims to have a similar power, although there is no legal basis for it. It is unlikely insurance commissioners will be able to protect people from these rate hikes, because excessive rollbacks will merely cause health plan providers to exit the market, which would be catastrophic for Obamacare’s political future.

Unexpectedly Early Arrival

Many health insurance experts predicted a coming death spiral, but it is remarkable the collapse of Obamacare is happening now. The situation must be worse than insurers are publicly disclosing to convince them to raise rates at such a high rate in such a short period.

Obamacare is the best possible scenario for health insurers—a guaranteed market for their product. It is still very much at risk from the upcoming Supreme Court decision in King v. Burwell, however, and from Republican politicians who remain united in pledging to repeal and replace it with patient-centered health reform.

In light of those threats, health insurance plan providers should want to move public opinion in favor of Obamacare by keeping rate hikes low. They should even be willing to lose money in the insurance exchanges until Obamacare is secure. The exchanges are still a small part of their book of business, so they can subsidize losses in exchanges for a while without risking solvency.

Much of the cost of the rate hikes will be borne by taxpayers instead of enrollees, because Obamacare’s tax credits to insurers operating in exchanges are based on the benchmark (the second-cheapest silver plan) and limited by beneficiaries’ household income. That too is hardly good news for Obamacare’s political future.

Announcing these rate hikes in summer 2015 indicates health plan providers’ experience in Obamacare exchanges must be painfully expensive.

John R. Graham (john.graham@ncpa.orgis a senior fellow at The National Center for Policy Analysis. An earlier version of this commentary originally appeared at NCPA. Reprinted with permission.

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