Sunday, September 7, 2014

The Next Chapter of Obamacare

Welcome back from the summer.

It's been pretty quiet lately on the Obamcare front.

So quiet, that there has been a flurry of articles recently over how Obamacare has dropped to a second or even third tier issue and will hardly matter come election-time.

Wishful thinking.

Obamacare has largely been out of the news cycle for a couple of months but that is about to change.

A few thoughts.

The 2015 rate increases have been largely modest. Does that prove Obamacare is sustainable? No. You might recall that on this blog months ago my 2015 rate increase prediction was for increases of 9.9%.
You might also recall my reason for predicting such a modest increase. With almost no valid claims data yet and the "3Rs" Obamacare reinsurance program, insurers have little if any useful information yet on which to base 2015 rates and the reinsurance program virtually protects the carrier from losing any money through 2016. I've actually had reports of actuarial consultants going around to the plans that failed to gain substantial market share suggesting they lower their rates in order to grab market share because they have nothing to lose with the now unlimited (the administration took the lid on payments off this summer) Obamacare reinsurance program covering their losses.

We won't know what the real Obamacare rates will be until we see the 2017 rates––when there will be plenty of valid claim data and the Obamacare reinsurance program, now propping the rates up, will have ended.

To say this fall's 2015 Obamacare open-enrollment has the potential to be problematic is an understatement.

The backroom is not built yet––a year and counting after it should have been.

How many people are enrolled in Obamacare? Without a government to insurance company accounting system yet built, no one knows.

The administration says they are going to auto-renew existing Obamacare policyholders. But they don't have a valid baseline census from which to start.

While the administration tells Obamacare policyholders their automatic renewal will go smoothly, the fact is every one of these subsidy-eligible people needs to go to the exchange website and re-enroll. The biggest reason is that in most cases the baseline second lowest cost Silver plan, upon which their personal subsidy is based, has changed and with it the subsidy they are eligible for. The only way a participant will know the impact of price changes in their community's baseline plan on their own net of subsidy premium is to re-enroll. If they do not, they could be surprised by a big jump in their 2015 out-of-pocket premium come January, or a big tax bill a year later. And, if their income data is not up-to-date, they could be getting a much smaller or bigger subsidy than they are entitled to.

Actuarial firm Milliman put the impact of Silver baseline plan changes this way in a recent issue brief: "Even modest premium increases by market leaders of 5% could lead to materially higher net premium contribution increases of 30% to near 100% for low income [subsidy eligible] enrollees during 2015." Milliman also pointed out, "If consumers choose to auto-enroll because of the simple process versus evaluating their options by going to the federal exchange, individuals who auto-enroll may have unexpected materially higher net premium contributions relative to payments in 2014 for the same plan."

Last week the Kaiser Family Foundation was out with a report that said average premiums will decline slightly for the Silver baseline plans in 16 markets. That conclusion could be incredibly misleading for current enrollees––or as an indicator about the success of the new health law.

The new 2015 Silver baseline plan may have a lower premium than the 2014 Silver baseline plan. But that is almost always because the insurance company that held that slot in 2014, and almost always got the largest share of business, significantly increased their rates for 2015.

Then another insurance company, who didn't write much business and likely now eager to increase market share, decreased their rates and has become the 2015 baseline plan. The second company was able to decrease their rates without much fear because the Obamacare "3Rs" reinsurance scheme virtually protects them from any material losses.

So, this headline about the baseline plans decreasing their rates in so many markets is more about the carriers who sold the most in the first year increasing their rates while the plans that sold very little business, and able to fall back on the Obamacare reinsurance scheme, cut their rates in a no lose attempt to gain business.

If you don't think this "auto-renewal" promise isn't going to lead to a real mess, you need to read the complete Milliman brief here.

Since the administration can't automatically update a participant's subsidy based upon 2015 changes in their local baseline Silver plan, the Obama administration's assurances that the renewal will go smoothly, without existing participants having to re-enroll, is just plain bad information that is going to cause people lots of problems.

The upshot is however many million people (pick any number other than 8 million) are still enrolled, everyone really needs to visit their state exchange or in the month between November 15 and December 15 in order to have their January 2015 enrollment validated, to be sure their income information is up-to-date, and to be sure they are enrolled in the optimal plan for the best subsidy.

Five to ten million people all trying to get through exchange websites between November 15 and December 15? Add however many people are going to sign-up for the first time this November to all of those existing participants re-enrolling for January 1, who will all be hitting the still fragile and state exchanges during that four week period, and it is not hard to see how Obamacare could be back in the news.

While the open-enrollment is now scheduled to begin until 11 days after the November election there will be plenty of renewal and cancellation letters going out in October––not the least will be more pre-Obamacare policies being cancelled this year now that their one-year extension is up––carriers aren't necessarily allowing policies to be extended further.

Does this all sound confusing? Just wait until we approach the next open-enrollment with millions of people hearing about all of this complexity and having just four weeks to get their enrollment validated for January 1. The Obamacare anxiety index is going to be off the charts well before November 15th.

Add to all of this bigger deductibles for 2015 (those go up with cost trend as well as the rates) and more narrow networks as well as generally larger rate increases for the plans that got the most enrollment and there will be lots to talk about.

Then there is the still unanswered question: How many people are enrolled in Obamacare?

Any bets on how many more months it will be before the Obama administration has the administrative wherewithal to answer that simple question and give us the real number? Any predictions prior to November 4th won't count.

The last couple of months have been very quiet for Obamacare.

That is about to end.
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