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Summer is upon us. For most Americans, this means bathing suits and beaches. For America's health wonks, hot weather signals something completely different: it's the start of health insurance rate filing season.
Health insurance plans are just now starting to turn in the prices they want to set for coverage next year. These filings are the first glimpse at how expensive Obamacare will be in 2015.
They're not easy to read, either: insurance rate filings tend to be dozens of pages long, filled with charts and jargon. No individual filing tells the entire story of how much premiums will increase in 2015. But there are a few things worth keeping in mind about what, taken altogether, the coming deluge of premium rates can tell us about the price of health insurance.
1. Insurance premiums went up every year before Obamacare. They're likely to go up afterwards, too.
Every year since the government began tracking these sorts of things, the cost of medical care has increased. Some years it increases slowly; some years it increases faster. But its a pretty constant truth that the grand total of health care spending always goes up.
This means that premiums, which insurance companies use to cover subscribers' medical bills, is near certain to increase — just as they would have if the Affordable Care Act had never become law.
"You've got things related to medical cost growth that have nothing to do with the health care law," says Caroline Pearson, vice president at research company Avalere Health. "Independent of any other factors, insurers may have a 5 to 6 percent increase in medical trend they need to account for."
2. Some rates will go up a little. Some will go up a lot. A handful might go down.
"There's a lot of variability by state and by plan," Pearson continues. "Some plans overpriced and some underpriced. Just because a single-carrier is increasing or decreasing a rate doesn't tell you a lot, except that they may have missed the boat last year."
The recently-released rates from Washington are a good example. There, the proposed rate changes range from a 6.8 percent decrease to a 14.2 percent increase.
Molina, the company with the 6.8 percent decrease, had set its premiums much higher than its competitors. Of course, the health plan didn't know it was setting prices higher when it did so — since 2014 was the first year of the exchanges, nobody knew what other insurers would be charging.
What Pearson expects to see this year is similar behavior elsewhere, with health plans that set premiums much higher or lower than the average regressing to the mean and trying to get a bit closer to their competitors' prices.
"I think the average premium will only move a bit," she says. "But where you'll see more movement is in the band of prices shrinking, and premiums getting closer."
3. Every state will be different
There's huge variation in what percent of the eligible market each state exchange reached. States that have reached a higher proportion of those who could shop on the marketplace are likely to have healthier populations. More people, the thinking goes, means the exchange netted not just the really sick people who need insurance but also some people who won't use their health insurance plans as much.
States have made different policy decisions that could also effect insurance rates. Some, for example, have allowed plans that don't comply with Obamacare to stay in the individual market. This could keep some healthier people out of the exchange, and insurers might need to change their rates to reflect that change.
"The people who were less healthy would be more likely to gravitate towards the compliant-coverage because its more robust," says Cori Ucello, senior health fellow at the American Academy of Actuaries. "Plans knew ahead of time, when setting their rates, which states were allowing these transitional policies, so they could build that into their prices."
Last, even before Obamacare, there was huge variation among states — and some of the factors driving that are still in play.
Massachusetts tends to have higher prices because many academic hospitals in Boston are able to command really high prices. Alabama providers earn less, and premiums are cheaper there.
4. What matters the most: who insurers expected to sign up in 2014
There's a lot of chatter in health policy circles about exchange sign-ups falling short of the Obama administration's target for young adults. The White House has previously said it hoped for about 39 percent of sign-ups to be between 18 and 35, but the number only ended up at 28 percent.
What matters more than what the White House wanted is what insurance companies expected. If insurers have been less optimistic this whole time — and expected young adults to be less than a third of enrollment — than they wouldn't need to jack up premiums to account for their mistake. But if their estimates were off — they expected more or less young adults — than they might change their rates to reflect the difference.
"Even if a plan has a high average age, if the insurer expected that, it doesn't mean there will be a big increase in the rates," says Cori Ucello, a senior fellow at the American Academy of Actuaries.
5. The rates for 2015 involve a lot of guesswork
Insurers don't fully know who signed up for their health insurance plans. Yes they know their subscribers' names, where they live and how old they are. But they don't quite know yet who has expensive health conditions — or who might not use a single doctor visit in the entire next year.
That's because the open enrollment period just ended in mid-April. The people who signed up for coverage in April didn't even start their plans until May 1, less than two weeks ago.
"We still don't have a very good idea of who is enrolled," says Elaine Corrough, a fellow at the Society of Actuaries who consults with health plans on setting premiums. "Insurers are able to take into account maybe two or three months of experience."
Insurers do know how old their new enrollees are, which can they can use as a bit of proxy for how healthy people are. But age isn't a perfect predictor: its possible to have a 29-year-old with really high costs, or a 50-year-old who barely spends a dime. Right now, insurers don't know which patients will be really expensive. They just haven't had enough time to figure it out.
6. These are only opening bids
What insurers are turning in right now are their proposed rate increases. These are an opening volley in negotiations between health plans and regulators that will happen over the next few months.
Over the course of those negotiations, prices can change dramatically. In Iowa, for example, Pearson notes that the average proposed increase started at 17 percent. But the average increase allowed was only 7 percent.
"They know they're going to get push back," says Pearson. "In some states, the rates come down a lot between the initial and final proposed increase."
