Let’s get the bad news out of the way first.
As you’ve heard by now, the U.S. Department of Health and Human Services announced Monday that premiums on the Affordable Care Act’s individual marketplaces will go up by an average of more than 20 percent for the 2017 plan year.
The increases point to a system that is still struggling to stabilize in some places, as pressure grows on lawmakers to fix some of the problems that have emerged in the law since the passage of Obamacare in 2010.
Fixing those problems isn’t rocket science, most health care policy experts agree. But the politics of Obamacare remains exceedingly difficult, as long as Republicans remain united in lockstep opposition to anything but full repeal.
Here are five points that help better understand the political and policy dynamics at play:
ACA Premiums Were Expected To Jump.
Industry analysts had long anticipated a rise in premiums this year, though the 20-plus percentage spike is perhaps steeper than expected. Last year, premium averages rose by only 7.5 percent.
The HHS announcement came as the window-shopping period begins ahead of open enrollment next month. Consumers will see a 25 percent average increase in premiums on HealthCare.Gov marketplaces, while on state-based exchanges for which data was available premiums will rise on average by 22 percent.
The increases suggest that in many — but not all — places, the individual marketplaces are still in flux, while giving Republicans a pre-Election Day talking point to hammer down on the alleged failure of Obamacare.
It’s worth noting that the premiums hikes affect only a small number of health care consumers — only 7 percent of Americans purchased individual plans in 2015. (The premiums for those receiving insurance through their employer are rising at rates lower than historic levels, the Huffington Post pointed out.)
Subsidies Will Help Cushion The Blow.
Monday’s HHS report stressed that — due to the tax subsidies available to certain consumers according to their income level — many customers will not bear the brunt of the premium increase. The subsidies are designed to rise as the benchmark silver plan premium increases.
The HHS estimated that 72 percent of current ACA marketplace enrollees will be able to find a plan for less that $75 a month, after the tax credits are applied. The HHS also pointed out that more consumers will be eligible for the tax credits than last year due to the increases, and many others — about an estimated 2.5 million consumers — are leaving their subsidies on the table by purchasing individual plans through brokers or otherwise outside of the Obamacare marketplaces.
Last year, 83 percent of consumers who enrolled in 2016 plans qualified for tax credits that amounted to an average of $294 per person per month, according to HHS.
Geography Determines Who Gets Hit Hardest.
Not everyone will receive the subsidies — the New York Times’ Margot Sanger-Katz estimated that 33 to 50 percent of individual plan consumers are unsubsidized — and geography plays a drastic role in the premium increases customers will see.
Consumers in Phoenix, Birmingham, and Oklahoma City will be among the hardest hit, according to the Kaiser Family Foundation’s analysis of the government’s report. A 40-year-old non-smoker without subsidies in those regions will see her premiums for the second-lowest silver plan rise by 145 percent, 71 percent and 67 percent, in those places, respectively. Meanwhile, consumers would see their premiums drop in places like Providence, Indianapolis, and Cleveland, suggesting that in some states the marketplaces have been able to achieve more stability even as others have struggled.
We Know What’s Driving The Premium Increases.
The premium hikes announced Monday come as some major insurers have sought to scale back their ACA participation, and many of the smaller co-ops have shuttered across the country. Fifteen new issuers will offer plans in 2017 across Healthcare.Gov states, while 83 issuers will be withdrawing plans compared to 2016, for a net loss of 68 issuers in Healthcare.Gov states, according the the HHS report.
The decrease in competition will mean consumers whose premiums are rising won’t have as many options to shop around for a lower deal, while fewer competitors in general means insurers have less incentive to keep health care plan costs low.
The insurers that have withdrawn from the ACA say their risk pools have been sicker than expected, meaning that not enough healthy people are enrolling to pay for premiums that will fund the cost of health care for sicker consumers.
Industry observers also note that the premium hikes also reflect an under-pricing of plans by insurers in the ACA’s initial years that they are now correcting for. The expiration of a number of government programs designed to buffer insurers’ losses in Obamacare’s early years can also help explain the course correction.
According to the HHS report, the premiums announced this week are about where the CBO projected 2017 premiums would be back in 2009.
Obamacare’s Problems Are Real But Fixable.
Even the ACA’s biggest boosters — including President Obama himself — have acknowledged that that some aspects of the law need fixing. He and other Democrats, including Hillary Clinton, have gotten behind a public option which would increase competition in the individual marketplaces, while Clinton is also proposing an option for older consumers to buy into Medicaid. Progressives have additionally pushed for more generous subsidies, while some industry experts, like Caroline Avalere, the senior vice president at the research firm Avalere Health, have argued for a stronger individual mandate, namely stiffer tax penalties for Americans who refuse to buy insurance.
The GOP nominee, Donald Trump, has said very little in terms of what he would do as president besides repealing Obamacare, and replacement proposals offered by Republicans have been light on detail. So much depends on the willingness of GOP lawmakers to come to the table for a compromise fix, and politics will play a major — if not a deciding factor — in the ACA’s ultimate success. Already analysts are seeing signs that marketplaces in Obamacare Medicaid expansion states are more stable than in those where GOP lawmakers refused to expand.
In the meantime, all eyes are on open enrollment and whether the premium hikes will scare consumers away from the marketplaces, prompting more instability. The Obama administration is in the midst of an aggressive outreach campaign, and is anticipating an uptick of about 1 million more consumers participating in the marketplaces for the 2017 plan year.