Monday, December 22, 2014

Most Obamacare plans will be more expensive next year. Here's why.

We generally expect health insurance premiums to go up, and 2015 was never an exception. While rates are increasing, they're increasing modestly — generally at rates lower than we saw prior to Obamacare. And, in Oregon, rates are actually going down.

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Here are five factors driving those premiums changes.

1. Healthier enrollees should keep rate hikes small

The people who enroll in health insurance in future years are expected to be healthier than the people enrolled today. The penalty for not carrying insurance is modest this year: $95 or 1 percent of income for an individual, whichever's higher. That gets scaled up over the next few years, compelling more people to purchase insurance.

The people who declined to sign up for insurance — and pay the penalty instead — are probably healthy; had they been uninsured and sick, they would have taken advantage of new coverage options under Obamacare. As these healthier people enroll in coverage, the average health of the insured population gets better, and insurance gets cheaper.

2. More insurer competition should stabilize prices

Some insurers decided to sit out the first year of health reform, but more are joining the Obamacare game in 2015. That competition between insurers should also hold premiums down: according to research by economists Leemore Dafny, Jonathan Gruber and Christopher Oby, if all major insurers participated in the state exchanges, rates could fall as much as 11.1 percent.

3. The slowdown in health spending growth is good news for insurance premiums

The cost of medical services outpaces the cost of everything else, so the price of health insurance climbs year after year.

But we've had some good news about health care inflation. According to Peter Orszag, former director of the Congressional Budget Office and Office of Budget and Management, the growth of health care prices has slowed tremendously, which means that insurance premiums — while we still expect them to rise — may not go up as fast as they used to.

4. But doctors could demand higher payments next year

The Congressional Budget Office hypothesized that strain on "narrow networks" could cause premiums on the state exchanges to go up. Right now, insurers have been able to contain the cost of premiums by creating small networks of doctors for their enrollees to visit. Doctor visits are only covered when enrollees visit a doctor within one of those networks — this means less choice, but lower prices.

As enrollment increases, though, health care providers will be more in demand. This means they'll be able to negotiate higher reimbursements for their services. Higher payments to providers require higher payments for health insurance.

5. Local conditions will vary

Insurance premiums are set at the local level, and insurers operate differently across different states. That means there there will be enormous state variation in how premiums change. In 2010, for example, average rate increases varied from 3 percent in Idaho to 21.8 percent in Nebraska, a difference of more than seven-fold.

We're still waiting to hear about premiums from a majority of states, so we don't have the whole picture yet. But, so far, it looks like next year's premiums are totally in line with expectations.

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