Megan McArdle says next year is going to involve “sticker shock” for an awful lot of ♡bamaCare!!! mandate-customers, and here’s why:
Moreover, significant rate increases are what I would broadly expect, because these rates are the first ones set with a full year of claims data, and what we know about the pool is that it is poorer and older — which would also mean sicker — than was projected. Initially, HHS was saying that it needed about 40 percent of the exchange policies to be purchased by people age 18-35 to keep the exchanges financially stable. It was 28 percent in both 2014 and 2015, according to HHS data. The CBO had projected about 85 percent of exchange enrollees to be subsidized, falling toward 80 percent as enrollment grew; instead, that number is 87 percent and actually rose slightly from 2014. It would be pretty surprising if rates weren’t increasing faster than inflation, or even than general health care cost inflation.
Another thing which can’t be helping is the ♡bamaCare!!! diktat that insurers can only change their prices on the exchanges once per year, rather than once per quarter. Having looked at last year’s numbers, the insurance companies (for whom you should feel zero pity, FWIW) must now lock in the rate increases they think they’ll need — for the entirety of 2016. Previously, they could have gone to the various state insurance commissars and said, “We think we need rates this much higher to stay solvent next year,” but since they had three more chances to nail the prices down, they were more likely to get it “right” and less likely to scare customers off with a one-time-super-price-hike and the resulting sticker shock.
So do Megan’s numbers portend the dreaded death spiral of rising rates and a shrinking customer base? I don’t think so, if only because those annual rate hikes also keep existing customers “locked in” at current rates for 12 months, and most of them will probably keep paying up for the full year. If I had to guess — and given the virtual Star Chamber in which ♡bamaCare!!! was constructed, it’s impossible to know for sure — there’s a good political reason for changing from quarterly to annual price changes. The hope, I’m guessing, was to keep the initial mandate-customer base locked in long enough for the dreaded Cadillac tax to kick in. At that point, millions more would start losing their employer-based plans, and get forced into the exchanges — thus help keeping them solvent.
It’s a big gamble, especially considering how unpopular the Cadillac tax is with the current Congress, and how unpopular it’s going to become with the general public once its effects begin to be widely felt.
There will be a big push to repeal the tax from 2018 and on (there’s a small push already), and there won’t be an Obama sitting at the Resolute desk with his veto pen to protect his cherished 40% excise tax on private insurance.
The structure of the exchanges was that initially they’d cover the sick, the poor, and the otherwise uninsured — making them fiscally unsound over the medium term, but politically impossible to kill over the short term. The long term would be covered by using the Cadillac tax to force damn near everyone onto the exchanges, and (hopefully) making them fiscally sound.
But I’m not sure anyone — even really well informed people — is ready for the uproar when the Cadillac tax hits home.