June 24, 2014

Obamacare Failing Its Premiums Standard

Last week Mandy Cohen, the head of insurance oversight at the Department of Health and Human Services, told Congress that the Obama administration is pleased with the increases in next year’s health insurance premiums. The administration expects average increases to be less than 10 percent. This is a long way from the president’s promise to lower premiums by $2,500 per family per year.


“I think if you look at the rate increases before the Affordable Care Act and what they were historically, we’re very glad.” – Mandy Cohen, 6/18/2014


Ten states have released preliminary filings by the insurance carriers in their state exchanges. The results so far run contrary to the administration’s spin, failing to clear even the newly lowered bar. Most large insurers are proposing rate increases in double digits.   

Proposed 2015 Premium Increases

Percentage increase of the lowest-cost “silver” plan in 2014 and the cost of that plan in 2015

Proposed 2015 Premium Increases

Note: for a 40-year old non-smoker
Source: Wall Street Journal

“Unreasonable” Rate Increases

Obamacare established, in Section 2794 of the law, a provision for HHS to review “unreasonable” rate increases, which HHS identifies as those 10 percent or higher. This is the administration’s standard: anything in single digits is reasonable; anything over 10 percent is unreasonable.

HHS claims this review process has kept rates down, but by its own standard the Obama administration is failing. Insurers have blown by the administration’s rate review, raising premiums at an “unreasonable” rate – double digits – all across the country.

Subsidies Raise Costs and Lower Competition

Democrats tout the government subsidies in the health care law that help some people buy insurance at a lower cost than rate hikes would indicate. But taxpayer-funded subsidies could be having a perverse effect on insurance rates, making coverage more expensive for everyone. With federal subsidies paying more than 76 percent of the average monthly insurance premium in the Obamacare exchanges, there is little downward pressure on rates. The subsidies conceal the price increase for a small number of consumers, but middle-class families may seek insurance outside the exchanges or forego it altogether. This would remove another check on premiums, leaving those without subsidies to pay even more.

Average subsidized health plan in the federal exchange

Average subsidized health plan in the federal exchange

Source: HHS

When Washington demands more benefits but tries to control rates, some insurers may leave the marketplaces and reduce consumer choice. Some may look for other ways to balance their books, such as narrowing their provider networks. Smaller insurers may have trouble entering markets because of the inability to set premiums in a way that deals responsibly with risk. All of this limits competition.  

Democrats sold the president’s health care law as reducing premiums. Having missed that goal, they continue to try to redefine what counts as affordable insurance. The administration now says success now is single-digit premium increases. While 2015 rates are not yet final, it appears Obamacare is about to disappoint Americans once again.