Obamacare Rates 2017: Why Are They Going Up?

Posted: August 31, 2016

by John Hansen

Obamacare rates are going up in 2017. Most states will have rate increases in the double digits. According to leading General Agency / FMO, Health Family Insurance, they have seen nothing in the single digits across the country with regard to average rate increases by state.

Some carriers are raising rates much more than 20%. Blue cross in Texas will have an almost 55% rate increase across the state in 2017 for Obamacare plans. Humana in Michigan will have a price increase of over 50% next year.

For more information on the ACA plan options and rate levels, see Obamacare Plans and Prices.

What’s causing these huge Obamacare rate increases?

The 3 R’s, Risk Adjustment, Reinsurance and Risk Corridors, were put in place to reduce risk for health insurance carriers. However, some changes are happening to Obamacare in 2017; 2 of the 3 R’s are going away. This alone is causing medical plans to file for rate increases.

Also, carriers are just now beginning to get a clearer picture of the risk associated with the pool of Health Care Reform Insurance enrollments.  When they set the rates originally in 2013, to some extent they were flying blind.

Health insurance companies knew that they would have to offer guaranteed issue coverage. No longer could they deny for costly pre-existing health conditions.

And, with the Affordable Care Act (ACA), many uninsured Americans would be entering the health insurance market for the first time. The carriers did not have data on these new enrollees, so it was very difficult to make an informed decision regarding setting rates for the new Health Insurance Marketplace.

About three years have passed, and the health insurance companies are now realizing that they should have set the rates higher in the beginning.  By looking at the data, the carriers realized that they have faced higher expenses than they anticipated. Now, they can make a more informed decision with regard to Obamacare rates in 2017.

The data is showing higher costs. 2 of the 3 R’s are going away. So now is the time to raise insurance rates.

Some Carriers Are Raising Rates in 2017, but Others Are Leaving the ACA

Some health insurance carriers are pulling out of the state and federal health insurance marketplaces. They have suffered too many losses, and they are calling it quits.

A health plan looks at the risk pool to determine the cost of that group of members. If the cost exceeds the monthly premiums paid by the risk pool, then the carrier will increase rates. However, if the expense of that group far exceeds the monthly premiums paid, then that carrier will often pull out of the market completely.

We are seeing quite a few health plans make an exodus from the state and federal ACA exchanges. United Healthcare, one of America’s largest health insurance providers, is pulling out of a majority of their Obamacare markets. They were in 35 states in 2016, and now they are pulling out of 31 of those states for the 2017 Open Enrollment Period.

Other health insurance carriers are strategically pulling out of certain states, certain markets and certain regions. This means fewer carriers available in these markets. Less competition could cause rates to rise even more in these areas.

The Good News

Subsidies are going up. As premiums go up, the cost of the second cheapest silver plan, the benchmark plan, will likely rise as well. This Silver Plan is used to calculate the cost sharing tax credits.

This will likely cause subsidy amounts to rise too, so Americans who continue to receive government financial assistance will not notice as big of a rate increase. On the other hand, the middle and upper class who do not receive the subsidies will be hardest hit during the 2017 Covered California open enrollment period.

Another negative… More subsidies means greater financial burden for the government. This may result in tax increases in the next few years.

We may have more rate stability in the future. Now that rates are based on the actual history and performance of real Obamacare enrollment, this allows the health insurance companies to price more accurately.

We may see some dramatic rate increases in 2018, but probably not as severe as the 2017 Obamacare hikes. And, after 2018, rates will likely become more stable, and we might even start seeing some occasional rate decreases from some of the more efficiently run health plans like Kaiser Permanente California, Molina Insurance and WHA Insurance.