Why Insurers Are Hiking Rates

Published June 17, 2015

Consumer Power Report #464

Why are insurance rate increases so much higher than expected? At Forbes, Bob Laszewski explains:

Instead of moderate rate increases for one more year, the big rate increases have begun. They are particularly large among the health insurers with the most enrollment–the carriers with the most data. Texas Blue Cross stands out. The health plan commented in its federal government rate filings that it covered 730,833 Obamacare individuals in 2014 with premium of $2.1 billion and claims totaling $2.5 billion–for a medical loss ratio of 119%. The plan further commented that, after the “3Rs” reinsurance adjustments, they lost 17% to 20% of premium in 2014–that would be about $400 million. And, they are only asking for a 20% rate increase.

While we won’t see all of the rates in all of the states for a few months, some state regulators have begun to make the 2016 rate actions public: CareFirst Blue Cross of Maryland is asking for a 34% rate increase on its PPO plan and a 26.7% rate increase for its HMO. CareFirst has an 80% market share in the Obamacare exchange and only 30% of the eligible Maryland market has signed up on the exchange. In Oregon, where less than 35% of [those] eligible have signed up on the exchange, the biggest insurer with 52% of the market, Moda, has asked for a 25.6% increase. Lifewise, with a 19% market share, has asked for a 38.5% increase. Blue Cross Blue Shield of Tennessee, with 165,000 members making up 70% of the Obamacare exchange, is asking for a 36.3% increase. The second biggest player, Humana HUM -0.13%, is asking for a 15.8% increase. Less than 40% of the eligible exchange market signed up in Tennessee …

The White House has said that “about 11.4 million Americans are signed up for private health coverage” through Obamacare’s insurance exchanges. But once you unravel the spin, what the latest numbers show is that the pace of enrollment has slowed down by more than half. If previous trends hold, Obamacare exchanges have enrolled roughly 5 million previously uninsured people.

But what about those taxpayer subsidies – the ones that might not be there should the Supreme Court rule in favor of a literal reading of the law in the King v. Burwell case? Don’t they insulate people from the real costs of coverage? Not so much:

Some might argue these increases are not such a big deal because those being subsidized by the government have their out-of-pocket premiums capped as a percentage of their incomes no matter what the insurance costs. That these people apparently think this bigger price will be paid by the health insurance subsidy fairy aside, it will be important to remember that deductibles and co-pays also rise in relation to costs. When the new plans become public expect to see bigger deductibles and co-pays as well for 2016. The average individual baseline Silver Plan deductible was almost $3,000 last year.

Like last year, others will argue that these rate increases still have to be approved in some of the states. But unlike last year, the carriers now have hard data to show the insurance regulators. Some states will bring political pressure to bear on these increases. But a 35% increase is not suddenly going to become a 5% increase. There is obviously an overall claim cost problem here and regulation can sometimes push it off but it can’t make it go away.

Others will point out that people only have to switch plans to keep their costs in line since there are some carriers asking for a lot less. That’s right. But the fact that it is the big market share players that are often asking for the big increases says something important about where these cheaper plans will be next year. The big guys know something.

You just can’t look at this data and come away with a conclusion other than the big cost increases driven by too few people signing up has started. And it has started a year earlier than most of us expected.

In the long term, this is the real failing of Obamacare and the real reason it will require reform no matter which party takes the White House in 2016. When you get down to it, the biggest problem with Obamacare is that it hasn’t been popular enough to work, and it hasn’t worked enough to be popular.

— Benjamin Domenech


In a speech Tuesday, President Obama said the Affordable Care Act has “now been woven into the fabric of America.” The president’s remarks come as the Supreme Court is preparing this month to decide King v. Burwell, a case that challenges whether the law ever actually authorized subsidies for health coverage paid out through federal exchanges. The details of Burwell reveal the degree to which the Obama administration’s handling of the ACA is ultimately at odds with ideals and aspirations that really are woven into the fabric of America: the rule of law and the separation of powers under the U.S. Constitution.

The ACA says plainly that subsidies may only be administered “through an Exchange established by the State.” But when it became clear that dozens of states were not going to create exchanges, the Internal Revenue Service (IRS), at the behest of the White House, simply issued a rule saying that subsidies could flow through exchanges created and operated by the federal government.

In other words, the challengers in King v. Burwell contend that the White House illegally authorized billions of dollars of taxes and spending, circumventing Congress and flouting the statutory text of the ACA by administrative decree. The accusation isn’t a stretch. After all, governing by decree has become commonplace in the Obama era–from the ACA’s many unauthorized delays, to the president’s executive order on immigration last year, to the State Department’s recent gun speech gag order.

This isn’t a question of a drafting error or a typo in the law, as some New York Times columnists contend. The ACA relies, to a remarkable degree, on the cooperation of the states. Because Congress cannot simply command state legislatures and governors to create a health-insurance exchange or expand Medicaid, the masterminds of the ACA had to give states incentives to cooperate. Hence, the feds offered to pick up the tab for Medicaid expansion–at least to begin with–and also offered to subsidize private coverage for individuals if states would create and operate a health insurance exchange that sold ACA-compliant plans.

But these exchanges proved to be far more difficult to set up and run than anyone expected. That includes the Obama administration, whose federal exchange, healthcare.gov, crashed hours after its October 2013 launch. Some states sunk hundreds of millions in taxpayer funds into their exchanges before abandoning them altogether and opting for a federal “fallback” exchange. Of course, some states simply refused to be dragooned into implementing the federal law. In the end, 38 states wound up with a federal exchange, not “an Exchange established by the State” through which subsidies could flow, as ACA allowed.

Instead of going back to Congress, which would have meant compromising with Republicans on other changes to the law, the Obama administration circumvented the ACA and attempted to implement the administration’s preferred policy outcome by fiat. This is not a trifling matter. Exchange subsidies are the ACA’s trigger for penalties and fines against employers who don’t provide coverage and individuals who don’t buy it. So as a result of the IRS rule allowing subsidies on federal exchanges in 38 states, the White House is subjecting 57 million employers and individuals to taxes that Congress never authorized–all to prevent a Republican Congress from opening up the law.

SOURCE: John Davidson, The Federalist

Sen. John Barrasso (R-Wyo.) said Tuesday that House and Senate Republicans are closing in on a backup plan for ObamaCare subsidies that they will release should the Supreme Court cripple the healthcare law this month.

Barrasso, who is leading the main Senate planning effort, said the plan would include some kind of temporary assistance for the 6.4 million people who could lose health insurance subsidies because of the case of King v. Burwell.

“We have worked on legislation in both the House and Senate,” Barrasso said at a Republican leadership press conference. “We’re coming very close together on that. We’ll bring that out after the Supreme Court makes a ruling, and it does protect those people who felt that they were following the law even though the president wasn’t actually following the law. So we do want to help protect them in this transition.”

A range of Republican plans have had conflicting answers on the question of temporary assistance. Rep. Tom Price (R-Ga.) last month came out against a plan from Sen. Ron Johnson (R-Wis.) that would temporarily keep ObamaCare subsidies flowing. A Wall Street Journal op-ed in March from Rep. Paul Ryan (R-Wis.) and two other chairmen heading the House’s main working group was silent on the question of temporary assistance.

Barrasso told a small group of reporters after the press conference that for the main Republican plan, “language has been drafted and will be able to be fine-tuned based on the results of what the Supreme Court rules.”

Asked if that language includes temporary assistance, Barrasso said, “Temporary, yes.”

He would not reveal exactly what kind of temporary assistance the bill includes. Johnson has proposed extending the insurance subsidies that already exist, while others like Sen. Ben Sasse (R-Neb.) have instead proposed a system of new tax credits.

“You’ll see that when we see what the Supreme Court finally says. If the Supreme Court rules the other way, this is not legislation we will introduce,” Barrasso said.

Asked about Barrasso’s comments and if the House working group had agreed to some kind of temporary assistance, Brendan Buck, a Ryan spokesman, said, “We haven’t made any decisions yet, but are definitely in touch with our Senate counterparts.”

SOURCE: Peter Sullivan, The Hill

President Obama will oppose Republican plans that end key Affordable Care Act insurance requirements if the Supreme Court rules against the administration, Health and Human Services Secretary Sylvia Burwell said Wednesday.

Speaking at a House Ways and Means Committee hearing, Burwell specifically rejected a proposal from Sen. Ron Johnson (R-Wis.) that would extend Obamacare subsidies in states with federal exchanges until 2017 but end many insurance coverage requirements. Johnson’s proposal has 31 Republican cosponsors, including Senate Majority Leader Mitch McConnell (Ky.).

“With regard to the Johnson piece of legislation, that piece of legislation, from our perspective, is repeal,” Burwell said at the hearing.

Burwell said the president would oppose Johnson’s plan because it would end the law’s individual and employer insurance coverage requirements.

The Health and Human Services Secretary repeatedly said the responsibility falls on Congress, the states and governors to help the more than 6 million Americans who stand to lose subsidies.

“If the court says that we do not have the authority to give subsidies, the critical decisions will sit with the Congress and states and governors,” Burwell said.

The hearing marks a continued shift in the Obama administration’s rhetoric on the Supreme Court case known as King v. Burwell. A ruling on the case is expected at the end of June or early July.

Before Wednesday’s hearing, Burwell and other administration officials refused to comment on contingency plans in the event of a Supreme Court ruling against their position. On Monday, Obama said Congress “could fix this whole thing with a one-sentence provision” if necessary.

In a February hearing at the Senate Finance Committee, Burwell deflected questions on what the administration might do if the court rules against their position. She said then that her focus was on the Obamacare open enrollment period that ended on Feb. 15.

Burwell’s statements on Wednesday indicate that Obama would oppose the majority of Republican replacement plans for King v. Burwell. Congressional Republicans have floated multiple proposals, and nearly all would end the law’s requirements to purchase health insurance.

SOURCE: Jon Reid, The Morning Consult

The genius of the SGR was that if doctors’ productivity improved more than the nation’s overall productivity, they got a raise. But if their productivity increase was slower, they got a pay cut – at least they were supposed to.

SGR worked fine until 2002. Then practice costs started to increase at a significantly higher rate than the SGR permitted, and doctors’ pay was cut almost 5 percent.

Well, that did not last long. Although the gap between overall productivity and physicians’ productivity kept growing, along with the pay cuts indicated by the SGR, Congress enacted 17 short-term patches to make sure pay never decreased. The current patch expired on March 31, and doctors would have taken a pay cut of about one-fifth had Obama not signed the permanent fix.

No politician has ever been recorded inquiring why doctors are not able to increase their productivity at the same rate as anyone else. It might have something to do with the way Medicare determines what each procedure is worth – Medicare’s centrally controlled system would make a Soviet planner blush. On the other hand, it may be that doctors simply cannot increase their productivity at the same rate that other workers can, for the same reasons musicians or writers cannot – modern technology cannot really compress the time needed for their tasks. But whatever the cause of the productivity gap, the fact remains that the SGR connected doctors’ Medicare pay with a reasonable measure of the nation’s ability to pay them. Bear in mind that entitlement spending is on autopilot – Medicare appropriations are deemed “mandatory,” or at least they will be until our creditors decide they’ve had enough. Without a measurement like the SGR, nobody can be confident how much money the government will need to pay Medicare claims. They will likely continue to significantly exceed the proportion of federal spending budgeted.

The SGR might not have been the right formula; perhaps it should have better accounted for unavoidable limits on physicians’ productivity improvements. Nevertheless, the principle that Medicare’s physician payments should be based on the nation’s ability to pay, rather than on the cries of physicians’ lobbyists, is one we have jettisoned at our fiscal peril.

SOURCE: John Graham, RealClearPolicy

Diet studies based on self-report are conducted because they are easy. But in this case, what’s easy is not at all better. Sure, the scientific literature on nutrition is bulging with studies, but at the same time, it’s watered-down with weak, meaningless information. Perhaps that’s why nutrition has become rife with hucksterism.

“The greatest obstacle to scientific progress is not ignorance but the illusion of knowledge created by pseudoscientific data that are neither right nor wrong,” [writes Edward Archer, a research fellow with the Nutrition Obesity Research Center at the University of Alabama].

Instead of focusing on inaccurate dietary advice, Archer urges a renewed focus on physical activity as a tool for maintaining health.

Nutrition research is awash in woo. To fix that, scientists should conduct only the most rigorous studies, preferably randomized-controlled trials, and funding agencies like the NIH and the CDC should only give grants to this sort of research.

The motto of the Royal Society of London, the oldest scientific society in the modern world, is Nullius in Verba.

“This phrase … is translated as ‘on the word of no one’ or ‘take no one’s word for it’ and suggests that scientific knowledge should be based not on authority, rhetoric, or mere words but on objective evidence,” Archer writes.

Ironically, self-reported data directly contradicts the Royal Society’s motto. Credulous nutrition scientists are literally taking everyone at their word. This has to end.

SOURCE: Ross Pomeroy, RealClearScience