Tag Archives: New York Times

Even the New York Times Acknowledges the ACA Is Collapsing

I don’t post here much now that I am on Forbes Apothecary site.  But I did want to take note of one development.  At long last, and after years of denial and shameless cheerleading, the New York Times has run a lead story acknowledging that the ACA is in deep trouble. Longtime ACA proponents such as Sara Rosenbaum, a professor of health law and policy at George Washington University, have come to the realization that the law is in deep trouble.

“Even the most ardent proponents of the law would say that it has structural and technical problems that need to be addressed,” she said. “The subsidies were not generous enough. The penalties for not getting insurance were not stiff enough. And we don’t have enough young healthy people in the exchanges.”

Frankly, although I take no pleasure in the millions of people who are going to be hurt as a result of the ACA’s implosion, I do have a sense of vindication.  I warned from the outset that, well-motivated or not, the ACA was not designed properly and that it was extremely vulnerable to a death spiral.  I discussed early signs of trouble. And yet people accused me of Chicken Little “The Sky is Falling” syndrome or of not understanding all the brilliant stabilization methods built into the ACA that would let its community rating scheme succeed where so many predecessors had failed.

So, the good news is that people can start to focus on ACA 2.0 rather than pretending that ACA 1.0 is working. It will be a huge fight — already the battle lines are being drawn.  My one plea is for discussion to be based on reality and transparency.  No more magical models that predict whatever the politicians want. No more things like the CLASS Act — remember that — which miraculously let the ACA appear to cost little even when it had zero chance of ever working.  Instead, and perhaps this is the part that is sadly naive in today’s American, let’s have a discussion where we actually listen to each other.

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No, New York Times, “guesswork” is not the reason ACA premiums are rising

The New York Times, whose editorial board has long been a strong supporter of the Affordable Care Act, published an article on its front page yesterday in which the headline read, “Seeking Rate Increases, Insurers Use Guesswork.” And, lest there be much doubt that the article suggested that speculation — the sort that regulators might understandably reject as a basis for premium hikes — rather than hard facts were leading to the frightening premium hikes, here are some quotes selected by author Reed Abelson for publication:

“But many insurers, including those seeking relatively hefty increases below 10 percent, say they are asking for higher premiums because they remain unsure about the future and what their medical costs will be.”

“It’s the year of actuarial uncertainty, and actuaries are conservative,” said Dr. Martin Hickey, chairman of the National Alliance of State Health CO-OPs and the chief executive of the New Mexico exchange. “The safest thing to do is to raise rates.”

Yes, to be sure, there was the suggestion in other parts of the article that higher than expected claims were part of the problem, but both the headline and remaining comments suggest that the high rates of increase were the result of unsupported speculation.

Wrong, New York Times! If you actually read the justifications for the premium increases submitted by insurers and their accompanying actuarial memoranda, you can see there are two dominant themes: (1) higher than expected claims expenses and (2) diminution of federal subsidies to the insurance industry.  You can also see lengthy memoranda containing facts and figures explaining their experience last year and the basis for their trending those experiences into the future. And, while one need not invariably take the insurance industry at its word or at face value, this is an instance where they have to make the best case possible for their rate increases. Regulators will scrutinize insurers’ work. Misstatements or rank guessing would seem to be against the insurance industry’s interest.

So instead of quoting people, who might themselves be guessing, let’s look at what the insurers actually said. I am going to bore you with 17 representative filings from across the nation. I do so because I want to make clear that the evidence is overwhelming. Most of these are contained in or accompanied by lengthy memoranda containing elaborate tables justifying the increases. I’ve attempted to be diverse in my selection of insurers to avoid repetition of, for example, the Blue Cross position or the Aetna position.

1. Blue Cross and Blue Shield of Alabama

BCBSAL proposes an average 28% increase to rates for the products offered in 2015. The main drivers of the need for a rate increase are as follows:

• Single risk pool experience which is significantly more adverse than that assumed in current rates

• Medical inflation and increased utilization as indicated in Section 5: Projection Factors

• Expected increases in the average population morbidity of the Individual Market, also described in Section 5: Projection Factors

• Reinsurance program changes, described in Section 9: Risk Adjustment and Reinsurance

BCBSAL determined that the following items did not contribute significantly to the need for a rate increase:

• Taxes and fees: Minimal changes in the amount needed for taxes and fees, described in Section 10: Non-benefit Expenses and Profit & Risk

• Benefit changes: No changes to offered benefits for 2016

2. HealthNet of Arizona

The projected claims experience was developed using calendar year non-grandfathered 2014 experience. If our rate request is approved, the expected premium for the entire risk pool is $313.91 PMPM. This represents an increase of 24.7% in average premium. 2014 premiums received were $127,867,744. Claims paid were $171,764,569. Since 2014 medical costs are increasing with an annual trend of 5.5%. Prescription drug costs are increasing with an annual trend of 10.3%. Claims costs are 85.1% of premium. Administrative costs are 14.5% of premium. Profit is -4.8% of premium.

3. Cigna Health and Life Insurance Company (Connecticut)

The most significant factors requiring the rate increase are:

Changes in Medical Service Costs: The increasing cost of medical services accounts for the majority of the premium rate increases. Cigna anticipates that the cost of medical services in 2016 will increase over the 2015 level because of prices charged by doctors and hospitals and more frequent use of medical services by customers.

Transitional Reinsurance Program Changes: The federally mandated transitional reinsurance program is in effect for three years (2104, 2015, and 2016). The amount of funding available to issuers under the reinsurance program to offset adverse claim experience decreases each year ($10B in 2014, $6B in 2015, and $4B in 2016). Additional premium is required to compensate for the reduced reinsurance support in 2016.

Morbidity (Risk Pool) Adjustments: The marketplace for non-grandfathered individual plans is affected by provisions of the Patient Protection and Affordable Care Act (the Affordable Care Act) that became effective in 2014, including:
guarantee issue and renewal requirements
modified community-rating requirement
federal premium subsidies for low and moderate income individuals.

The effects of these 2014 changes when coupled with previous regulatory changes and overall utilization experienced in 2014 suggest that it is appropriate to increase the overall claim level assumption reflected in the premiums for individual plans in Connecticut.

4. Aetna Health, Inc. (Florida)

Why We Need to Increase Premiums
Medical costs are going up and we are changing our rates to reflect this increase. We expect medical costs to go up 10%. Medical costs go up mainly for two reasons – providers raise their prices and members get more medical care.
For policies issued to individuals in Florida, some examples of increasing medical costs we have experienced in the last 12 months include:
· The cost for an inpatient hospital admission has increased 8.0%.
· The average cost for outpatient has increased 8.4%.
· Costs for pharmacy prescriptions have gone up 8.0%.
· The use of outpatient hospital services has increased 4.5%.

What Else Affects Our Request to Increase Premiums
Several requirements related to the Affordable Care Act (ACA) impact these rates. These include:
· “Keep What you Have” and its impact on the population that will enroll in the plans covered by this filing
· Enhanced network access standards – which limit our ability to control the cost and quality of medical care
· Changes to required taxes and fees
· Phase-out of the Transitional Reinsurance Program which increases rates for plans issued to individuals

5. Humana Employers Health Plan of Georgia, Inc. (Georgia)

Many factors influence this rate calculation. The primary factors include
‐ Population health‐ Expected changes in the aggregate health level of all individuals insured by all carriers in the individual health insurance market.
‐ Claims cost trend‐ Changes in expected claims costs associated with changes in the unit cost of medical services, changes in Humana’s contracts with hospitals, physicians, and other health care providers, and the increase or decrease in utilization of medical services including changes in the severity and mix of services used.
‐ Plan Changes‐ Changes to plan designs due to changes in federal requirements.

6. Wellmark Health Plan of Iowa, Inc. (Iowa)

Reason for Rate Increases The effective average rate increase for these products is 28.7%, varying by plan as listed in the table above. The primary drivers of the proposed rate increases include, but are not limited to:

• Adverse Experience/Risk Adjustment Transfer: The risk of the market is more adverse than what we had assumed in the current rates; which leads to a significant projected risk adjustment transfer payment to other carriers.

• Medical and Drug Inflation: Both increased utilization and increased cost per service/script contribute to projected claims trend.

• Phase out of Federal Transitional Reinsurance Program: As this program phases out over three years, the expected receivables from this program are smaller for 2016 than they were for 2015.

7. CareFirst of Maryland (Maryland)

The main driver of the financial performance of these products and the proposed rate increase is the very significant increase in average morbidity between 2013 (the pre-ACA pool which underwent underwriting) and 2014 (the post-ACA guarantee-issue pool). The allowed claims per member per month (PMPM) increased from $197 in 2013 to $391 in 2014, a much higher and faster increase than anticipated.

8. HealthPlus Insurance Company

The biggest driver of rate change is 2014 claims experience that is more adverse than assumed in current rates. Another driver is due to the lower Federal reinsurance recoveries.

9. Coventry Health & Life Insurance (Missouri)

Why We Need to Increase Premiums
Medical costs are going up and we are changing our rates to reflect this increase. We expect medical costs to go up 9.4%. Medical costs go up mainly for two reasons – providers raise their prices and members get more medical care.

What Else Affects Our Request to Increase Premiums
We offer individuals in Missouri a variety of plans to choose from. We are changing some benefits for these plans to comply with state and federal requirements.
Several requirements related to the Affordable Care Act (ACA) may also impact these rates. These include:
• Changes to our expected projected average population morbidity and its relationship to the projected market average for risk adjustment.
• Changes to required taxes and fees
• Phase-out of the Transitional Reinsurance Program which increases rates for plans issued to individuals

10. Aetna Health Inc. (Nevada)

Why We Need to Increase Premiums
Medical costs are going up and we are changing our rates to reflect this increase. We expect medical costs to go up 10.6%, excluding the effect of benefit changes described below. Medical costs go up mainly for two reasons – providers raise their prices and members get more medical care.

For Individuals in Nevada, some examples of increasing medical costs we have experienced in the last 12 months include:
• Primary Care Physician visits have increased by 124.2%.
• Inpatient bed days have increased by 51.0%.
• Expenses for emergency treatment have increased 22.7%.

What Else Affects Our Request to Increase Premiums
A prominent hospital system in Nevada moved from participating to non-participating in 2014 and is expected to stay that way into 2016. This has an adverse impact on claims costs since the more favorable lower-cost in-network reimbursement rates no longer apply.

Several requirements related to the Affordable Care Act (ACA) also impact these rates. These include:
• Enhanced network access standards – which limit our ability to control the cost and quality of medical care
• Changes to required taxes and fees
• Phase-out of the Transitional Reinsurance Program which increases rates for plans issued to individuals

11. Blue Cross Blue Shield of New Mexico (New Mexico)

[E]arned premiums for all non-grandfathered Individual plans during calendar year 2014 were $84,497,659, and total claims incurred were $105,605,811.

After application of the ACA federal risk mitigation provisions, the total BCBSNM Individual non-grandfathered block of business experienced a financial loss of 17% of premium in 2014.

The proposed rates effective January 1, 2016, are expected to achieve the loss ratio assumed in the rate development.

Changes in Medical Service Costs:

The main driver of the increase in the proposed rates is that the actual claims experience of the members in these Individual ACA metallic policies is significantly higher than expected. After application of the ACA federal risk mitigation provisions, the total BCBSNM ACA block of business experienced a loss of 19% of premium in 2014.

12. Medical Mutual of Ohio (Ohio)

Medical Mutual of Ohio is proposing an overall rate increase of 16.9% for plans effective January 1, 2016. This increase will potentially impact the 37,673 existing MMO members. The rate change ranges from 7.4% to 26.0%, varying by plan, age, change in tobacco user status, change in family composition, and the geographic area where the member resides.
The experience of MMO Individual ACA plans was not favorable in 2014. MMO has paid nearly $167 million claims and only received $114 million in premium. In 2014, MMO lost about $42 million dollars on its individual ACA business alone. With the rate increase implemented for 2015 and proposed for 2016, MMO’s experience is expected to improve, becoming profitable in 2016.
The following items are the main drivers for the proposed rate increase:
1. The transitional reinsurance recovery decreased from the 2015 level and will have a smaller impact offsetting the total claims.
2. The increase in the medical and drug cost is about 6.2% annually. Out of that increase, 40% is due to the change in unit cost, 31% is due to the change in utilization and the rest is due to the change in the mixture of services.
3. We expected the morbidity and demographics to improve in 2016 due to increased penalty of non-compliance, a greater understanding of the ACA law, and a reduction in the amount of pent-up demand for services. This alleviates the rate increase needed based on the experience.
4. There’s no changes in benefit from 2015 to 2016.
5. The administrative cost and commission will decrease $2.51 per member per month. The profit and risk will increase $7.92 per member per month. The taxes and fees will increase $4.51 per member per month.

13. Geisinger Quality Options (Pennsylvania)

Geisinger Quality Options has proposed an overall base rate increase of 58.36% for Individual PPO members renewing in the Marketplace effective January 1, 2016 through December 1, 2016. The overall increase is largely due to the claims experience in ACA compliant individual market plans being much higher than what was assumed in current rates. Other contributing factors include annual claims trend, federally-prescribed ACA fees and reduced benefits in the Transitional Reinsurance Program.

14. Pacific Source Health Plans (Oregon)

This filing requests an aggregate increase of 42.7 percent over the rates approved in our 2015 Oregon Individual filing. The proposed rates are based on PacificSource’s historical Oregon Individual claims experience adjusted for PacificSource’s historical average risk compared to the market average risk, anticipated medical and pharmacy claims trend, expected change in market morbidity from 2014 experience period to 2016 projection period, changes in benefits, and expected state and federal reinsurance recoveries. The proposed rates also reflect changes in the taxes and fees imposed on health insurers for 2016. The range of rate increases is 23.4 percent to 60.4 percent and impacts PacificSource’s 8,216 Oregon Individual members. The variation in rate increases is driven by some changes in benefits i.e. copays, deductibles, OOP max, as well as adjustments to geographic area factors. The overall average impact of benefit changes on the requested rate increase is 0.0 percent.

The increase in rates from 2015 to 2016 is primarily driven by a dramatic worsening of claims experience in 2014 as compared to 2013, and the reduction of expected reinsurance recoveries in 2016. Note that this is the first rate filing where a full year of post ACA experience data was available. This data shows that the overall increase in morbidity from PacificSource pre ACA experience to post ACA market experience is much greater than originally projected in our 2014 and 2015 rate filings. The combined medical and pharmacy annual trend used in this filing is 7.0 percent, which reflects expected changes in costs, changes in utilization, and the impact of leveraging. The primary driver of the annual trend assumption is specialty drug cost and utilization, particularly Hepatitis C drugs. Administrative expenses and margin are budgeted to decline compared to the 2015 rate filing.

Over the calendar year 2014, the Oregon Individual block earned 30.2 million in premium and incurred an estimated 50.0 million in claims, for a raw medical loss ratio of 165.2 percent. Premium and claims expenses are shown before the impact of reinsurance, risk adjustment, and risk corridor. At this time we do not expect risk corridor payments to be made to issuers. After expected risk adjustment and state and federal reinsurance recoveries, we estimate a 2014 loss ratio of 116.5 percent. Combined administrative expenses, commissions, taxes, and assessments were approximately 24.6 percent of premium.

15. Scott & White Health Plan (Texas)

The Scott & White Health Plan is requesting an average rate increase of 32.3% to the Individual HMO Rating Pool. There are 24,294 covered individuals as of January 2015. 10.0% of the 32.3% increase is due to health care cost inflation, 14.3% of the increase pertains to changes in Risk Adjustment and Reinsurance assumptions, 2.7% is due to changes in fees, and the remaining 5.3% is due to actual and expected unfavorable experience.

16. Optima Health Plan (Virginia)

The rate increase is the same for all members in the same plan. Where the 2016 plan is different than the 2015 plan these members will be automatically enrolled into the 2016 plan shown. Premium rates are effective January 1 2016.
Claims expenses were very high in 2014 relative to earned premium. However payments from the federal transitional reinsurance and risk adjustment programs are expected to help significantly.
The federal reinsurance program is only temporary and while it is continuing into 2016 the amount of reinsurance per claim is less than in 2014 and 2015. As such premium rates will be increased to account for this impact. Additionally the risk adjustment program alone does not appear to provide sufficient relief to enable the Company to meet its pricing targets.
It is anticipated that 2014 had some amount of higher claims due to new members having pent-up demand for services and less healthy people tending to be the first to sign-up for ACA-compliant plans given the new rating and underwriting rules. Because of this we do not assume that 2016 will necessarily be as high a claim level as seen in 2014 but some of what has been experienced will remain.
These reductions from 2014 levels will be countered by upward pressure on costs from other sources such as medical trend as described below.
The proposed rate increase is intended to account for expected claims activity in 2016 given historical experience and changes in morbidity as well as any expected assistance from the federal reinsurance and risk adjustment programs. With the proposed rate increase the anticipated loss ratio is 80 percent.
Medical trend for these products is anticipated to be an average of 7 percent per year on paid claims for example after member cost sharing or a total of 14.5 percent over the period from 2014 to 2016. This was developed based on historical experience as well as consideration for information available on general medical inflation trends. Medical trend includes a combination of utilization and costs of services. This increase in cost is included in the calculation of the rate increase.

17. Security HealthPlan of Wisconsin (Wisconsin)

The biggest driver of the rate change is SHP’s underlying claims experience used in developing the projected index rate. We used SHP’s 2014 individual non-grandfathered, ACA allowed claims as the basis for claim development. The 2014 claims and membership distributions indicate experience is worse than we priced for in 2015 rates. Further, based on a Wisconsin risk score analysis conducted by Milliman, we are projecting no risk adjustment transfer payment. This assumption of no payment results in higher rates in 2016 since we had projected SHP would receive money from the risk adjustment pool when developing the 2015 rates.

Another driver of the rate change is due to the lower federal transitional reinsurance recoveries in 2016. The recoveries assume in 2016 SHP will receive 50% of all SHP’s individual members’ per member per year incurred claims between $90,000 and $250,000. In 2015, rates were priced assuming recoveries to be 50% of claims between $70,000 and $250,000 based on the federal parameters in place at the time of pricing.

The projection of claims from the experience period to the effective period assumes 5.0% annual medical and drug trend. These trends were estimated based on data from SHP, conversations with SHP senior management, Milliman research, general industry knowledge, and our judgment of recent trends.

Conclusion

So, does this sound like “guesswork” to you?  It does not to me.  All of these insurers are lying or mistaken about what is causing their requests for premium hikes? I don’t think so.  Of course, there is “trending” in which insurers approximate how previous increases will continue to the future and this requires some art on the part of insurers.  Of course, insurers may want to present their requests for rate hikes in a way more likely to be approved. But what they have presented is no more “guesswork” here than the work of any insurer in setting rates for almost any form of insurance. It is the sort of actuarial projections that are generally approved by regulators.

Health insurers now have a decent feel what it is going to cost them to participate in Obamacare.  And these insurers have a pretty common perspective: the whopping increase are driven by  greater utilization than expected among those electing coverage  (adverse selection and moral hazard), increases in the cost of medicine, and reduction of federal subsidies.

Exactly what some people predicted.

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