Price increases and plan switching

Charles Gaba at is doing an admirable job of tracking requested rate increases for ACA compliant plans for the individual and small group markets in a variety of states. For instance, he recently posted on his home state of Michigan:

assuming that all of my numbers (or at least all of the major ones) above are accurate, it appears that the requested average 2016 premium rate increase on the individual market in Michigan next year is around 9.8%….

The weighted price increase in 2016 will be less than 9.8% in Michigan for the policy universe mentioned above.

The first reason  is that these are initial request numbers to state regulators.  State regulators almost never accept the initial numbers.  This year, it is extraordinarily unlikely that state regulators will accept initial numbers quickly as every state will be waiting for the Supreme Court.  A ruling for the government and current subsidies rules means a moderate delay; a ruling for the plaintiffs means a mad scramble for new rates.

Secondly, and more importantly, we have to model some type of plan switching behavior as people aggressively switched plans in 2015 in response to absolute  and relative price changes.  Over 30% of renewals in 2015 were active renewals and a third of those renewals were plan switches.  A large proportion of the switches in 2015 went from higher cost plans to lower cost plans.  I think that this dynamic will be a constant in the ACA as pricing is transparent, on exchange buyers tend to be extremely cost aware as they tend to have less money than the average American with group sponsored coverage, and the products can be reasonably compared.

I project that the effective total net price increase after an open enrollment period will only be two thirds of the pre-open enrollment membership weighed average as people will be leaving higher cost plans and moving to lower cost plans far more frequently than flowing the other way.  This prediction will get stronger in 2017 and beyond as the Exchange markets should have finished converging to reality as the actuaries, underwriters and pricing seers will have sufficient claims data to make informed predictions instead of educated guesses on risk pool composition.

6 replies
  1. 1
    Steeplejack says:

    @Richard Mayhew:

    Another great, informative post. I hope you aren’t disappointed by the small number of comments you get. I learn a lot and get great points for talking with idiots and the uninformed.

    Maybe you need more invective and profanity. Or maybe a funny cat video now and then.

  2. 2
    Jasmine Bleach says:

    Informative, but not hugely positive. Essentially, if I’m reading you right (feel free to correct me), you’re predicting that in Michigan, the rate increase will likely end up being two-thirds of 9.8%? That’s 6.5% or so?

    That’s actually a pretty big increase–way above inflation. I understand that at least it’s not the double-digit increases that were likely happening pre-ACA (don’t have Michigan data available), but that’s still a big hit for people. We’re just getting bankrupted more slowly (glass half empty, sorry).

    In the article Gaba has previous to that Michigan one, it shows CoveredCalifornia isn’t doing so well, either–signing up far fewer people than they thought would enroll, leading, it seems, to budget shortfalls in the system. This quote was particularly illuminating:

    A number of factors contributed to the shortfall, but health policy experts said that some uninsured folks still find health insurance unaffordable despite the health law’s premium subsidies.

    The only real hope I see for the population at large is that some state passes a form of single payer, it works well, and other states start to copy it. But that might take a very long time to happen (if it ever does).

  3. 3
    Richard Mayhew says:

    @Jasmine Bleach: If someone is one Exchange and getting subsidies, assuming their income is constant, they are insulated from the price increase (the Fed subsidy formula transfer risk rate increase to the Feds.) Individuals off Exchange or on-Exchange but making too much to be subsidized will eat the entire cost increase.

  4. 4
    MomSense says:

    If we had a serious Congress that was interested in governing, there are a number of fixes that could make this work better. Yeah I’m not happy about paying $571 a month because I also have two kids in college and other expenses but I used to pay a lot more ($1,100 more per month) for a crappy plan before I had to discontinue my health insurance coverage altogether.

  5. 5
    Belafon says:

    @Jasmine Bleach:

    The only real hope I see for the population at large is that some state passes a form of single payer, it works well, and other states start to copy it states like Texas laugh at the thought of taking care of its poor.

  6. 6
    Eric NNy says:

    @Steeplejack: I think there are a lot of us out here reading these, but I don’t really have much to add to the conversation. VERY informative though.

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