Premiums Rise at Big Insurers, Fall at Small Rivals Under Health Law

By Louise Radnofsky
The Wall Street Journal, June 18, 2014

Hundreds of thousands of consumers nationwide who bought insurance plans under the Affordable Care Act will face a choice this fall: swallow higher premiums to stay in their plan, or save money by switching.

That is the picture emerging from proposed 2015 insurance rates in the 10 states that have completed their filings, which stretch from Rhode Island to Washington state. In all but one of them, the largest health insurer in the state is proposing to increase premiums between 8.5% and 22.8% for next year, according to a Wall Street Journal review of the filings. That percentage represents the average rate increases for all individual health plans offered by that carrier.

At the same time, insurers with the smallest enrollments are proposing to cut rates so they can lure customers as the cheapest plans in their markets.

The rate proposals reflect a combination of big carriers stepping back from initial aggressive pricing, rising medical costs and increased competition during the second year of President Barack Obama’s health law.

With dominant market share now, analysts say, carriers feel they have room to raise rates. Nine of the carriers are proposing average increases for 2015 that range from 8.5% by Anthem Inc. in Virginia to 22.8% from CareFirst for its BlueChoice plans in Maryland. Most of these large carriers’ proposed rate increases hover around 10%.

Erin Shields Britt, a spokeswoman for the Department of Health and Human Services, said the new exchange system “drives competition among plans, requiring issuers to be more conscious of how they stack up to their competitors, which is a trend we are already seeing accelerate in a number of states, with new plans entering the market.”

http://online.wsj.com/articles/premiums-rise-at-big-insurers-fall-at-sma…

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Aetna CEO says 2015 Obamacare rates increase less than 20 pct

By Caroline Humer
Reuters, June 11, 2014

Health insurer Aetna Inc is submitting premium rates to regulators for 2015 Obamacare insurance plans that generally increase less than 20 percent from 2014, Chief Executive Officer Mark Bertolini said on Wednesday.

Bertolini said that customers are disenrolling from exchange plans on a regular basis but that the company still expects to have 450,000 exchange customers at year end. He said that while he did not know the reason for these customers leaving, he suspected that it was due to the out-of-pocket costs before members reach their deductibles.

http://www.reuters.com/article/2014/06/11/aetna-insurance-idUSL2N0OS1CF2…

Because of uncertainty of claims experience and instability in enrollment, it is difficult for insurers to set their 2015 premiums to match market conditions. But what is projected so far is that the dominant insurers intend to raise their premiums about 10 percent, ranging between 8.5 and 22.8 percent, according to this WSJ report. Aetna’s Mark Bertolini assures us that increases will be “less than 20 percent.” What a relief.

Our Department of Health and Human Services is thoroughly sold on the concept of using markets to price insurance products. As their spokeswoman, Erin Britt, says, the new exchange system “drives competition among plans, requiring issuers to be more conscious of how they stack up to their competitors.” Let’s look a little bit closer at what this market competition means.

The insurance underwriting cycle is a phenomenon in which insurers enter the market with low premiums in an effort to gain a larger share of the market. Once they have that share, they increase their premiums to the maximum tolerated. In the meantime, competitors with a smaller share of the market lower their premiums in an attempt to increase their share. Because their premiums are too low and their volume is too small, they fail and shut down. That leaves the dominant insurers in a position to charge even higher premiums than their costs would warrant. Patient/consumers end up being the losers.

That is precisely what is happening now, according to this report. The dominant insurers are raising their rates significantly (but “under 20%”) and “insurers with the smallest enrollments are proposing to cut rates so they can lure customers as the cheapest plans in their markets.”

These sick market dynamics are part of the reason that we have the least effective health care financing system in the world. Nobel laureate Kenneth Arrow explained to us decades ago why markets do not work in health care. While it is true that they do not work for the patient/consumer, market distortions work very well in moving our financial resources into the hands of those controlling the markets.

Mark Bertolini, who is keeping Aetna’s premium increases below 20 percent, for 2013 received an executive compensation of $30,712,565. Works pretty well for him.

Each day I write these comments, this is the point at which my blood pressure goes up and I have to restrain myself from using inappropriate language. I don’t know how much longer I can do that. Using the democratic process, we need to take over our government by electing representatives who serve us, the people, rather than serving those whose “r” is greater than our “g.”

At the following link, Paul Krugman explains Thomas Piketty’s r>g. It is very wonkish, but skim on through to the end and you’ll get the point.

http://krugman.blogs.nytimes.com/2014/03/14/notes-on-piketty-wonkish/