Why are Utah Health Insurance Rates on the Rise?

May 11 | 2016
Fringe Benefit Analysts Senior Consultant
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In July of 2016, Utah will be seeing small group rates from some of the largest Utah health insurance carriers increasing 20% or more. Rates are just now being filed for 2017 and the indicators are not pretty. We are expecting to see an additional double digit increase in small group Utah health insurance plans, with personal plan increases exceeding 20% or more in a number of cases.

So what is happening here? The post Affordable Care Act (ACA) era has seen moderate to flat increases in health premium as a whole to this point. Why such a dramatic change now? The answer to this question requires peeling back many layers of changes to the health market as well as an understanding of risk. Like a commodity market, the pricing of health insurance has been speculative and as such, there is an opportunity to get this wrong. Unfortunately, some of the health insurance actuaries may have done just that.

There have been many changes in the marketing of small group health insurance plans; including the removal of pre-existing condition limitations and a leveling of premium rate tables. This means charging older enrollees less, guarantee issue coverage for all and the removal of participation requirements for companies who enroll in a plan effective January 1 each year. These changes, although socially appropriate, are not conducive to price decreases. Rather, these practices were implemented initially as cost saving measures. Add to this the loss of the uninsured risk pool, which protected both the small group and individual markets from adverse risk, and you have a potentially deadly cocktail brewing.

To counterbalance the risks inherent to the ACA, we were hopeful that an influx of young healthy individuals would hit the market, considering that those choosing to remain uninsured would be faced with a tax penalty. However, statistics tell us that this has simply not come to fruition. Nationally, there has been a strong increase in Utah health insurance plan membership, most of which is subsidized by the federal government. That being said, the average claims per subscriber is actually on the rise rather than dropping. That in and of itself is an extremely disturbing fact. Additionally, what of the young, healthy members entering the market to offset the unhealthy risk we were bound to get with the loosening of underwriting rules? Unfortunately, that has not come to fruition either, not yet at least. There is still a large segment of the population finding it more palatable to risk their tax refund than actually purchase health insurance.

So, why are health insurance rates in the individual and small group markets (those most affected by the ACA in other words) on the rise? Here are a few factors to consider:

  • With the changes in underwriting practices already mentioned, it takes time to fully evaluate any amendments to risk profiles. Much of what is taking place now is more in tune with timing than any other factor. Rates remained steady during the evaluation phase, but now the data has arrived that actuaries can price credibly. To reiterate, in virtually every case, the data is not favorable.
  • Prescription drug costs are on the rise, particularly in regard to injectable specialty medications. The frightening thing here is that a huge portion of pharmaceutical research and development goes into this arena. Specialty medications have no expiration on their patent and we are finding new ways to use them. According to US News and World Report, this area of pharmacy alone has exceeded $1 trillion nationally. Each time a new medication is approved and hits the market, it increases that cost to the tune of $100-200 billion, and the majority of recipients are on these medications for life.
  • The overall health of Americans is on a steady decline. According to the National Institutes of Health, more than 21 million Americans were considered to be morbidly obese by the end of 2015 with an expected increase in this number of 6.6% annually. This translates to increased levels of heart disease, diabetes and cancer; all of which can be treated by the high cost specialty medications mentioned previously
  • The Transitional Reinsurance Program has been a bust. As part of the ACA, taxes earmarked for a reinsurance pool have been included in health insurance premiums. The idea is to have this pool of funds available for carriers who find that the changes in underwriting have caused their financials to be less favorable, thus stabilizing the market. On the surface this is a great idea. However, the problem has been a combination of Congress cutting the funding of the pool in addition to a higher than expected claim load. The net result has been lower than requested reimbursement amounts to carriers around the country. In Utah, this led largely to the demise of Arches, the state’s health insurance Co-Operative. Other carriers, whose doors remain open for business, have also found this funding failure to be near devastating.

The above list of reasons are not the only cost drivers, however they do make up a good portion of the reasoning for the sudden spike in Utah health insurance rates. So, what is the outlook? Right now there is not a great deal of light at the end of the tunnel. It took us a while to get where we are today and it will certainly take an equal or greater while to turn things around. One thing is certain however, if we don’t start to think and care more about our billed charges, the payee side will consider this business as usual. How can we affect change? More than likely, it will take the same type of ground swell support we saw prior to the passing of the Affordable Care Act. Last time we addressed the payment of health insurance; this time we need to look very closely at providers, their practices and their charging mechanisms. Fulfilling this task will be a tall order indeed.