NCPA - National Center for Policy Analysis

Expect a Big Premium Hike in 2017

December 29, 2014

Are your Obamacare premiums lower than you expected this year? Don't celebrate quite yet. Stephen Parente, health finance professor at the University of Minnesota, says premiums are lower than they would otherwise be because of two temporary Obamacare programs that help insurers keep costs down. But those programs expire in 2017, and that's when Parente says big rate hikes will come.

Risk corridors and reinsurance are two Obamacare programs that are slated to run through 2016. Risk corridors transfer funds to insurers whose costs are higher than expected, while reinsurance compensates insurers whose enrollees have medical costs above $45,000 in a single year. Senior Fellow John R. Graham recently explained how these programs work in an NCPA report.

Ultimately, taxpayers are on the hook for these programs. Parente says the programs allow insurers to charge lower premiums, because insurers will be compensated if costs are too high. However, on January 1, 2017, the reinsurance program and risk corridors expire. What will happen?

According to Parente's research with the University of Minnesota, premiums after 2016 will increase quickly, especially for cheaper plans. Bronze family plans could rise by 45 percent (from $9,000 to $13,000) while individual plans could skyrocket by 96 percent (from $2,000 to $4,000). What will result? A rise in the uninsured rate. Parente estimates a 13 drop in the size of the individual health insurance market in 2017 alone, followed by a 1 percent decrease each year for the next decade. That would mean the uninsured rate could reach 40 million within 10 years -- 10 percent higher than the uninsured rate today.

Source: Stephen T. Parente, "A Lull Before the ObamaCare Rate Storm," Wall Street Journal, December 16, 2014. 


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