Commenter The Moar You Know is telling a story that we’ll hear more this fall as his company’s rates spiked:
We lost our grandfathered status with UHC. Today we got the bad news. Looks like Bronze for us unless we’re willing to eat a 40-50% premium hike; even if we were willing, we can’t. We don’t have the money.
I really don’t want to sound like one of those guys, but I will: this is not what I expected Obamacare would allow. I don’t know what’s happening with larger employers but this small company is not happy today.
There are two components of the price increase. The first is medical trend which is just a fancy word for the cost of services rendered. That probably would explain a five to ten percent hike (I can’t say more without seeing claims data, and I really don’t want to look at claims data….). The second is mostly PPACA related.
There are two PPACA related themes that contribute thirty to forty points of the rate increase. The first is enhanced benefits. This is the coverage of maternity care, this is the removal of lifetime limits, this is allowing adult children up to age 26 to stay on a parent’s policy. Preventative screenings are also part of this deal. However, these enhanced benefits probably only add slightly to pricing.
The most important part of TMYK statement is that his plan lost grandfathered status. This explains most of the price increase. There are two types of grandparented plans. The first are the grandfather plans. These are plans that were in existance before PPACA was signed. People and companies who had these plans were allowed to renew these plans as long as there were no substantial changes (no benefit changes, co-pays barely moved, deductibles constant etc). Insurance companies were free to offer these plans or pull these plans at will. The grandfathered plans are a declining segment of the group/employer sponsored insurance market, and a very small component of the individual market by mid-2015.
Grandmother plans are individual plans that were supposed to go away on 1/1/14 and be replaced by ACA compliant individual plans. The entire furor over the ‘If you like your insurance, you can keep it” produced the grandmother kludge. States were allowed to elect to keep non-ACA compliant plans available to be sold to current policy holders for up to three years. The grandmother plans would be consided adequate coverage for mandate/tax penalty purposes. Some states elected to go full grandmother, others allowed grandmother plans for a year or two, and others just sent everyone to the Exchanges for 1/1/14.
That history is important because the big difference between the grandparent plans and ACA compliant plans is underwriting.
The grandfathered group plans that TMYK had were underwritten on company experience and individual beneficiary medical history. All PPACA small group plans are underwritten against the entire community. This is a massive underwriting change. As I wrote in February 2014 this change has significant distirbutional impacts.
Community underwriting elimintates gender as a factor of underwriting so men now have to bear some of the cost of pregnancy risk. It also spreads the cost and risk of pre-exisiting conditions throughout the entire universe of small groups covered by a single insurer in a state. This is a major change that will have people screaming this fall as rates resort for the 2015 open enrollment period…..
On average, the total cost of premiums to insure the same people in the same groups with experience or statistical underwriting versus community underwriting will be the same. However the distribution of those costs will be wildly different. Groups that are more male and/or healthier in general will see significant rate increases due to underwriting changes. Groups that are more female or statistically likely to be sicker than average will see flat rates or decreases.
My bet is that TMYK’s company was relatively healthy compared to similar companies, and thus they weren’t high utilizers compared to demographically similar companies. Community underwriting means they are subsidizing sicker populations with increased rates.
The TLDR: 75% PPACA responsibility for rate increase.