2017 Health Insurance Rate Increases

Separating the Facts From the Hype

Health insurance premiums continue to climb
Health insurance premiums continue to climb. But the headline-grabbing increases don't apply to most policies. Peter Griffith/Creative RF/Getty Images

If you've been paying attention to health insurance headlines over the last few months, you've probably seen some alarming news about 2017 health insurance premiums. Here's what you need to know to put the details in context

The Headlines Pertain to the Individual Market

Virtually all of the eye-popping headlines have been about health insurance premiums in the individual market. That's where people buy their own health insurance if they don't have access to an employer-sponsored plan or coverage from the government (Medicaid, Medicare, CHIP, etc.).

According to an analysis conducted by ACA Signups in March 2016, the individual market includes about 18.2 million people or about 5.6 percent of the total United States population. 

If you get your health insurance from your employer, or from a government program, your rate increases for 2017 are not the ones that have been making headlines this summer (although the small group premium review process is conducted simultaneously, the average proposed small group rate increases in most states are significantly lower than the proposed rate increases for the individual market).

At ACA Signups, Charles Gaba has been tracking the proposed rate increases for 2017 and weighting them based on the market share of each carrier. The result—as of late July, across 37 states and the District of Columbia—is an average of nearly 23 percent. But again, that only applies to the individual market; for more than 94 percent of Americans, those proposed rate increases do not apply.

The Rates Are Not Finalized

In nearly every state, regulators are still reviewing the rates that health insurers have filed for 2017. California and Oregon finalized their rate review process in July 2016, but many states won't complete the process until September or October. 

In four states (Missouri, Oklahoma, Texas, and Wyoming), the federal government is in charge of the rate review process for the individual and small group markets (Alabama took over its own rate review process as of April 2016, and Missouri will begin handling its own rate review process starting in 2017).

The rest of the states and the District of Columbia conduct their own rate reviews, but the scope of those reviews varies considerably from one state to another.

Many states solicit public commentary regarding the proposed rate increases, and some hold public hearings to discuss the rate proposals and gather feedback from consumers.

Regulators  Don't Have Magic Wands

Although proposed health insurance rates are scrutinized by regulators, the approved rate increases can still end up much higher than consumers might expect. If the proposed rates are actuarially justified based on claims costs, there's little that regulators can do to bring down the premiums. 

Although state and federal actuaries comb through insurers' rate filings to determine whether they're justified, some states do not have the power to reject or modify (either up or down, depending on the data) rate filings that they determine to be unjustified. 

The minimum federal requirement for the rate review process is that regulators examine the proposed rates and supporting documents, and determine whether the rates are actuarially justified. If they are not, that information is communicated to the health insurer, and if the insurer proceeds to implement the new rates without further modification, the regulators notify the public that the rates are not justified. But many states have more robust rate review procedures that allow regulators to have significant control over whether proposed rates are modified before being approved.

However, state regulators can only modify the proposed rates if the rates are not justified by the data. As claims expenses increase, so do health insurance premiums.

Health insurers in the individual and small group markets are required to spend at least 80 percent of premiums on medical costs and improving healthcare quality (for large groups, the requirement is at least 85 percent of premiums). If insurers spend more than they're allowed on administrative costs, they have to issue rebates to their enrollees.

When health insurers file rates for the coming year, they know the data will be scrutinized by regulators prior to the plans becoming available for purchase, and they also know that their spending on medical costs versus administrative costs will be analyzed after the plan year is over.

In short, health insurers cannot just sell plans at whatever price they like. But if the data indicates that premiums are not keeping pace with claims expenses, insurers have no choice but to increase premiums. And even in states with very robust rate review programs, regulators have no choice but to approve proposed rate increases if they're actuarially justified.

Subsidies Will Offset Rate Hikes for Millions of People

Premium subsidies are a cornerstone of the "affordable" aspect of the Affordable Care Act (ACA). Even if final approved rates are as high as the current 23 percent average proposed rate hike, premium subsidies will offset a significant portion of that rate increase.

As of March 31, 2016, more than 11 million people were enrolled in coverage through the health insurance exchanges nationwide, and 84.7 percent of them were receiving premium subsidies. For those individuals—as well as people who become newly eligible for subsidies in 2017—the subsidies reduce the price of the benchmark plan to a level that's considered affordable under the ACA.

When the dust settles on the new rates for 2017, the benchmark plan—the second-lowest-cost silver plan—in each area will be determined. If the average price of the benchmark plan is higher in 2017 than it was in 2016, average subsidies will also rise, just as they did in 2016.

It will be important for exchange enrollees to log back into their accounts during open enrollment and make sure there isn't a new plan offering a better value for 2017. And although the premium increase for a particular plan might be quite high, the subsidies for people in that area will only increase significantly if the benchmark plan is experiencing a significant increase in price (keeping in mind that the benchmark plan might be an entirely new plan; it's just the second-lowest-cost silver plan in a given area, and not necessarily the same plan from year to year).

Because of the way plans can shift around in terms of how their prices compare to one another from year to year, there's no way of knowing that you're still getting the best value from the subsidy program without logging back into your exchange account and comparing your current plan to the options that will be available for the coming year (window shopping typically becomes available in the week leading up to open enrollment, but all of the plans for 2017 will be available for browsing and/or purchase as of November 1, 2017).

Off-Exchange Enrollees 

If you're enrolled in an individual market health insurance plan outside the exchanges (or if you have an on-exchange plan but earn too much for subsidies), you could be facing a significant rate increase for 2017, depending on where you live and which health insurer you use.

If there's any chance that you're subsidy-eligible, you'll want to consider the on-exchange options during open enrollment. The glitches that plagued the exchanges in 2013 and 2014 are mostly resolved, and the exchange is the only place you can get a premium subsidy. 

If there's no way you're subsidy-eligible, you can shop either on or off the exchange, but you'll definitely want to compare the options available during open enrollment, rather than simply letting your current plan auto-renew. 

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