It's now the silly season for predicting health insurance rates. Consulting groups, government agencies and the media have once again begun the game of speculating about 2015 premiums. Never before have I seen such intense interest from the press about health insurance rates, normally considered a snoozer of a story.
For the public, this new media interest may be a good thing. If the stories are done well, consumers might learn something about the mix of factors that go into determining the premiums they will pay. (Hint: it's not always the increasing costs of medical care.) And you can argue that getting a gist of what to expect next year might help families plan their budgets accordingly. But in the last couple of weeks, media stories have been downright misleading as states have started announcing preliminary 2015 rates for policies sold inside and outside of their insurance exchanges.
High or low, insurance rates have become intensely politicized, as much as the Affordable Care Act itself. And that, I think, is the reason why press is spinning reports this way and that: Rates are going up! Increases less than expected! Obamacare is working! Obamacare is not working!
Perhaps the most misleading headlines are the ones about whether average premiums are going up or down – average being the number that news outlets tend to report most frequently. I am reminded of the old joke: Did you hear about the statistician who put her head in the oven and her feet in the refrigerator? She said, "On average, I feel just fine." A case in point was the Cincinnati Enquirer, which passed along news from Ohio's Lt. Gov. Mary Taylor, no fan of Obamacare, who said insurance officials expected a "13 percent rise in the average premium."
Very few consumers pay the average rate. "The end game is the actual rate someone pays," says Jim O'Connor, an actuary with the consulting firm Milliman, adding that increases themselves don't tell you which policy has the most affordable rate. This year, premiums are a bit topsy-turvy. O'Connor told me that a carrier that charged high rates in 2014 may be asking for smaller rate increases this year while an insurer that offered lower rates to grab market share may be asking for much higher increases in 2015.
This year in Washington State, for example, Coordinated Care, a subsidiary of Centene, offered some of the lowest rates available. But for 2015, they are seeking the second highest rate increase. Molina Healthcare, headquartered in Long Beach, California, charged some of the highest rates in 2014, but is requesting an average decrease of 6.5 percent for its 2015 health plans.
The premium charged doesn't tell the full story about what shoppers will find when they venture into the marketplace. Network changes – and there are bound to be many – can mask real changes behind premium adjustments, O'Connor told me. Consumers may be pleased if a carrier adds a high-priced children's hospital or a well-known cardiac surgeon to its provider roster, but they will likely pay higher premiums for those additions.
Conversely, they may find lower premiums when an insurer drops some high-cost providers. Of course, that means if you go to those providers and want to continue with them, you may have to change carriers and pay higher premiums.
Carriers can also play with their drug formularies, and they have a lot of leeway in differentiating their products with formularies. These differences also affect what shoppers pay. A low premium might mean the carrier won't cover as many drugs in a particular category.
A few months ago I sat down with another actuary and tried to figure out whether a particular insurer offering a policy in Arkansas was covering a particular drug. It soon became an exercise in frustration, an experience corroborated by Avalere Health this spring. In a study funded by Pfizer, Avalere found that formularies in about half of the exchange plans are difficult, extremely difficult or impossible to access.
I don't have the magic bullet for figuring all this stuff out yet, but I do know one thing: Anyone basing a health insurance decision on official pronouncements about average increases or decreases could be making a big mistake.