Where is the Affordable in Health Care?

Posted: July 25, 2016

by John Hansen

Despite the Promises of Obama Care, California Health Insurance Companies Keep Raising Rates

We were promised the Affordable Health Care Act, but for many it seems like it should just be called the “Care Act”. If you’re not poor and on subsidies, prices have actually risen. Health care in our state is actually less affordable than it was before Obama Care California came to be.

California health insurance companies have been trying to respond to the problem of affordability. They have made efforts to get their risk pools stabilized, but this has been difficult since Health Care Reform. The goal is to provide affordable health care by only having rate increases that are lower than Consumer Price Index (CPI), but we are likely not going to see that at least until 2019.

The two biggest drivers of cost in California health care are Minimum Essential Benefits (MEB) and Guaranteed Issue coverage.

Guaranteed Issue Health Care is the #1 Cause of Premium Increases

Since the passage of Obama Care, no longer can medical insurance carriers in California deny coverage to people with serious health conditions. “Auto-issue health insurance” is really dangerous for California health plans. This led the carriers to enter into the new world of Health Care Reform less than optimistic about their ability to provide affordable health care.

However, after three years of testing the waters, California health insurance companies have more data to look at and the market seems to be getting more stable. Jeff Smith, Vice President of Individual and Family Sales for Blue Shield of California, says, “The risk pool is shaping out nicely if SEP [the Special Enrollment Period] doesn’t blow up on us.”

Minimum Essential Benefits is the #2 Factor Affecting Cost of Medical Insurance 

The Affordable Health Care Act (ACA), also known as Obama Care, requires individuals to be covered with minimum essential benefits. There are 10 essential benefits that you must have in order not to get a tax penalty.

This forced California health insurance companies to increase the coverages offered on their medical plans. Richer benefits mean higher premiums and less affordable health insurance. Many in California would rather have more affordable health care with less coverage, so they wouldn’t have to pay so much, but since Health Care Reform, lesser coverage means tax penalties.

Other Factors Affecting the Affordability of Health Care 

Those who apply outside of the regular Covered California Open Enrollment Period tend to have more health care problems. The Special Enrollment Period (SEP) has proven to increase costs for California health plans by 40%.

Specialty drugs have caused Rx costs to go up 15-20% for the last 3-5 years, which is another factor that makes it difficult for California insurance companies to offer affordable health care. It has led carriers to re-evaluate their formularies. Also, tiered drug rates have come out in response to the high cost of brand name prescription drugs and wonder drugs.

Despite these factors, the individual market seems to be getting more established. We are seeing a convergence of cost where individual health insurance California plan rates are getting similar to group health insurance California rates. This is probably due to the larger pool of individuals in the IFP market making the risk comparable to small business pricing.

For Now, Rates Are Going Up

Achieving affordable health care for middle and upper class individuals is likely going to take some time. You can expect California health insurance companies to raise their rates 10%+ in 2017 pretty much across the board.

Kaiser Permanente, arguably the most efficiently run health plan in California could lower its rates if it had the infrastructure to handle a massive increase in enrollment. However, with the other carriers likely to increase rates, we anticipate that Kaiser Permanente will follow suite in order to keep their enrollment at manageable numbers. 

Eventually in California, Kaiser Permanente may be the key to attaining affordable health care. Kaiser may lower its rates and drive costs down, making health insurance cheaper in the Golden State. As Kaiser builds its networks (hospitals, doctors, infrastructure, etc.), they’ll be able to handle more membership. Then, likely we’ll see Kaiser Permanente start lowering prices, which ultimately could put pressure on the rest of the California health insurance companies and make health care more affordable.