Health Insurers Struggle to Offset New Costs

Health Insurers Struggle to Offset New Costs

Companies begin to propose big premium increases for coverage next year under health law

Humana said Wednesday it made a slim profit on individual plans in the first quarter, not including some administrative costs, but still expects a loss for the full year. Photo: Bloomberg News
By
Louise Radnofsky and
Anna Wilde Mathews
May 4, 2016 7:24 p.m. ET

Insurers have begun to propose big premium increases for coverage next year under the 2010 health law, as some struggle to make money in a market where their costs have soared.
The companies also have detailed the challenges in their Affordable Care Act business in a round of earnings releases, the most recent of which came on Wednesday when Humana Inc. said it made a slim profit on individual plans in the first quarter, not including some administrative costs, but still expects a loss for the full year. The Louisville, Ky.-based insurer created a special reserve fund at the end of last year to account for some expected losses on its individual plans in 2016.
The rate picture will vary by state and by company, analysts said, and not all insurers will need large premium increases to bolster their financial performance. Indeed, some companies, including Medicaid-focused insurers such as Centene Corp. , have already said plans sold through the health law’s exchanges are profitable.
Still, the analysts said, a number of insurers are likely to seek significant hikes as they aim to cover costs that have continued to outstrip their estimates—in some cases coming after earlier premium increases.
The increases, along with the continued lagging results for insurers, are a sign that the exchange business hasn’t stabilized for insurers in the first few years of the health law’s full implementation, prompting health plans to continue to push for more changes to the law.
The health law instigated a sweeping overhaul to the way insurance is priced and sold in the U.S. Insurers can’t deny coverage to consumers with risky medical histories, or charge them more for plans. A number of popular insurers say the enrollees who bought plans through the exchanges have had higher health costs than they originally predicted—when they knew less about the impact of the law.
“It’s a pretty good bet if a plan lost money in 2016, it will adjust pricing in 2017,” said Sam Glick, a partner with consulting firm Oliver Wyman, a unit of Marsh & McLennan Cos.
In Oregon and Virginia, the first two states to make insurers’ premium proposals for 2017 public, several big insurers are showing how those projections bear out.
Providence Health Plan, currently the largest insurer for people buying coverage through the Oregon health exchange, is seeking an average increase of 29.6%.
In Virginia, where premium increases had been relatively modest to date, Anthem Inc. is asking for an average increase of 15.8%.
Proposed average increases are just one indicator of coming premium changes for individuals, which vary depending on the specific plan a person buys, and they must be evaluated by regulators before they can take effect. Increases can be blunted for many lower-income consumers by federal subsidies that flow directly to the insurer, offsetting the consumer’s premium bill.
Officials from the Department of Health and Human Services emphasized the role of those subsidies and said that after increases last year, by one estimate the average additional amount paid by people with tax credits was only a few dollars a month.
“Averages based on proposed premium changes aren’t a reliable indicator of what typical consumers will actually pay because tax credits reduce the cost of coverage for the vast majority of people, shopping gives all consumers a chance to find the best deal, and public rate review can bring down proposed increases,” said Ben Wakana, an agency spokesman.
At the same time, the average increases present a vivid picture of how insurers feel they are faring year-on-year.
Humana said it would make changes to its exchange offerings for next year “to retain a viable product for individual consumers, where feasible,” and its moves may include “statewide market and product exits both on and off exchange, service area reductions and pricing commensurate with anticipated levels of risk by state.” Humana sold plans on exchanges in 15 states this year.
Humana’s announcement follows a disclosure from UnitedHealth Group Inc. last month that, amid deepening losses, it will next year withdraw from all but a handful of the 34 states where it was offering exchange plans.
Anthem and Aetna Inc. were far more upbeat about their prospects on the health-law marketplaces in recent earnings calls, but both have also said they aren’t yet achieving their targeted margins and aim to improve results next year.
Insurers seeking rate increases—which include several other big plans in Oregon and Virginia—all cite the higher-than-expected medical costs incurred by their enrollees as factors in their decision.
In Oregon, regulators’ filings show Moda Health Plan Inc., once the largest insurer on the exchange, saying it needs to hike premiums there by an average of 32.3%. That is coming on the heels of an increase of around 25% last year; the insurer also said it would stop selling individual plans in Alaska.
Kaiser Foundation Health Plan of the Northwest asked for an increase of 14.5%, the second lowest percentage increase in Oregon.
Oregon’s insurance commissioner has the power to block proposed premium changes, but indicated Tuesday she was looking to make sure rates were sufficient for insurers to pay out claims as well as affordable for consumers.
“For the next two months, we will analyze the requested rates to ensure they adequately cover costs without being too high or too low,” said the commissioner, Laura Cali.
In Virginia, CareFirst BlueCross BlueShield’s proposed average increases are around 25%, though that number reflects the insurer’s decision to withdraw all of its lowest-premium plans, the so-called bronze tier that has the highest cost-sharing for participants, and the increase is around 11% for plans that have a similar level of benefits, the insurer said.
Insurers are pointing to factors beyond medical claims that will affect their pricing next year. Aetna has said the phasing out of two programs designed to stabilize the Affordable Care Act exchanges would push up the prices of exchange plans by about 6% in 2017, though the suspension of a tax on insurers will partly mitigate that impact.
In addition, UnitedHealth’s withdrawals may prod competitors to boost rates, said Raj Bal, an insurance-industry consultant. He suggested the remaining insurers will anticipate the effect of signing up some of the costly enrollees that resulted in red ink for UnitedHealth. “People will anticipate that risk will migrate to them, and they want to price for it,” he said.
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