Proposed rate increases for Obamacare insurance policies are 'eye-popping'

So says Megan McArdle writing in Bloomberg.  And while these proposed rate increases are not likely to be the final rates allowed by states.  McArdle points out that the increases tell a story of their own – that those who have purchased Obamacare insurance policies are older and sicker than projected, leading to massive losses by insurance companies in some cases.

Cheerleader Kevin Drum waves his pom-poms and assures his readers that the actual rate increases will probably be in single digits.  But McArdle says this is an illusion as companies try to find a way to make money when claims are skyrocketing.

But in the case of the companies cited by the Wall Street Journal, I'd bet they're not going to go down to 4-8 percent. As it turns out, the insurer filings are public information, available on state websites. And in the three cases where I could see supporting data about premium revenue and losses, those losses appear to be large. Moda of Oregon says that its claims were 139 percent of revenue, making for a margin of -61 percent. If I am reading their somewhat confusing table right, Health Service Corporation of New Mexico says it lost $23 million on revenue of $121 million. CareFirst of Maryland says that claims were 120 percent of revenue, which if we add in some money to pay for overhead, amounts to ... less than or equal to what they're asking from regulators. I can't find claims experience data for Tennessee, but that state told the Wall Street Journal that it lost $141 million on exchange plans last year.

You can expect many of these companies that are losing money on Obamacare policies to leave the exchanges, thus reducing competition which will lead to higher rates anyway.  Not exactly a death spiral for Obamacare – yet.  But the future looks grim:

Moreover, significant rate increases are what I would broadly expect, because these rates are the first ones set with a full year of claims data, and what we know about the pool is that it is poorer and older -- which would also mean sicker -- than was projected. Initially, HHS was saying that it needed about 40 percent of the exchange policies to be purchased by people age 18-35 to keep the exchanges financially stable. It was 28 percent in both 2014 and 2015, according to HHS data. The CBO had projected about 85 percent of exchange enrollees to be subsidized, falling toward 80 percent as enrollment grew; instead, that number is 87 percent and actually rose slightly from 2014. It would be pretty surprising if rates weren't increasing faster than inflation, or even than general health care cost inflation.

Eyeing the Journal's list, the most obvious pattern is that states are converging on a price somewhere well north of $300 a month for a 40-year-old nonsmoker seeking a Silver plan; the states with the biggest rate hikes all had premiums under $250, and are asking to be allowed to go near or over $300, while the states that asked for low increases were already over $300, and in some cases well over. (Vermont is at $430 -- and asking to go to $476! "Only" an 8.4 percent increase, but wow.) It seems as if states where insurers initially underpriced are now trying to move toward a natural price somewhere between $3,600 and $5,000 a year for a single nonsmoker. If that's the price of providing basic benefits, regulators cannot command it away by fiat; the best they can do is to force insurers out of the market.

Even with subsidies, Obamacare is reaching a tipping point.  As policies get drastically more expensive, fewer people can afford them – even with subsidies.  The Supreme Court decision coming probably next month might eliminate the subsidies which, given that data we have now, would probably mean the practical end of Obamacare. 

Insurance companies have been bullied by the Obama administration into keeping rates as low as they are, even though they can't make any money.  For sheer survival, most companies will begin to charge enough so they at least don't lose any money, or, as McArdle suggests, leave the exchanges altogether.

So says Megan McArdle writing in Bloomberg.  And while these proposed rate increases are not likely to be the final rates allowed by states.  McArdle points out that the increases tell a story of their own – that those who have purchased Obamacare insurance policies are older and sicker than projected, leading to massive losses by insurance companies in some cases.

Cheerleader Kevin Drum waves his pom-poms and assures his readers that the actual rate increases will probably be in single digits.  But McArdle says this is an illusion as companies try to find a way to make money when claims are skyrocketing.

But in the case of the companies cited by the Wall Street Journal, I'd bet they're not going to go down to 4-8 percent. As it turns out, the insurer filings are public information, available on state websites. And in the three cases where I could see supporting data about premium revenue and losses, those losses appear to be large. Moda of Oregon says that its claims were 139 percent of revenue, making for a margin of -61 percent. If I am reading their somewhat confusing table right, Health Service Corporation of New Mexico says it lost $23 million on revenue of $121 million. CareFirst of Maryland says that claims were 120 percent of revenue, which if we add in some money to pay for overhead, amounts to ... less than or equal to what they're asking from regulators. I can't find claims experience data for Tennessee, but that state told the Wall Street Journal that it lost $141 million on exchange plans last year.

You can expect many of these companies that are losing money on Obamacare policies to leave the exchanges, thus reducing competition which will lead to higher rates anyway.  Not exactly a death spiral for Obamacare – yet.  But the future looks grim:

Moreover, significant rate increases are what I would broadly expect, because these rates are the first ones set with a full year of claims data, and what we know about the pool is that it is poorer and older -- which would also mean sicker -- than was projected. Initially, HHS was saying that it needed about 40 percent of the exchange policies to be purchased by people age 18-35 to keep the exchanges financially stable. It was 28 percent in both 2014 and 2015, according to HHS data. The CBO had projected about 85 percent of exchange enrollees to be subsidized, falling toward 80 percent as enrollment grew; instead, that number is 87 percent and actually rose slightly from 2014. It would be pretty surprising if rates weren't increasing faster than inflation, or even than general health care cost inflation.

Eyeing the Journal's list, the most obvious pattern is that states are converging on a price somewhere well north of $300 a month for a 40-year-old nonsmoker seeking a Silver plan; the states with the biggest rate hikes all had premiums under $250, and are asking to be allowed to go near or over $300, while the states that asked for low increases were already over $300, and in some cases well over. (Vermont is at $430 -- and asking to go to $476! "Only" an 8.4 percent increase, but wow.) It seems as if states where insurers initially underpriced are now trying to move toward a natural price somewhere between $3,600 and $5,000 a year for a single nonsmoker. If that's the price of providing basic benefits, regulators cannot command it away by fiat; the best they can do is to force insurers out of the market.

Even with subsidies, Obamacare is reaching a tipping point.  As policies get drastically more expensive, fewer people can afford them – even with subsidies.  The Supreme Court decision coming probably next month might eliminate the subsidies which, given that data we have now, would probably mean the practical end of Obamacare. 

Insurance companies have been bullied by the Obama administration into keeping rates as low as they are, even though they can't make any money.  For sheer survival, most companies will begin to charge enough so they at least don't lose any money, or, as McArdle suggests, leave the exchanges altogether.