States worry about rate shock during shift to new health law

by Noam N. Levey, Los Angeles Times

Less than a year before Americans will be required to have insurance under President Obama’s healthcare law, many of its backers are growing increasingly anxious that premiums could jump, driven up by the legislation itself.

Higher premiums could undermine a core promise of the Affordable Care Act: to make basic health protections available to all Americans for the first time. Major rate increases also threaten to cause a backlash just as the law is supposed to deliver many key benefits Obama promised when he signed it in 2010.

"The single biggest issue we face now is affordability," said Jill Zorn, senior program officer at the Universal Health Care Foundation of Connecticut, a consumer advocacy group that championed the new law.

Administration officials have consistently downplayed the specter of rate increases and other disruptions as millions of Americans move into overhauled insurance markets in 2014. They cite provisions in the law that they say will hold down premiums, including new competitive markets they believe will make insurers offer competitive rates.

Exactly how high the premiums may go won’t be known until later this year. But already, officials in states that support the law have sounded warnings that some people ‘ mostly those who are young and do not receive coverage through their work ‘ may see considerably higher prices than expected.

That is because of new requirements in the law aimed at making insurance more comprehensive and more affordable for older, sicker consumers.

Insurance regulators in California, which has enthusiastically embraced the law, cautioned the Obama administration in a recent letter about "rate and market disruption."

Oregon’s insurance commissioner, another supporter of the law, said new regulations could push up premiums for young customers by as much as 30% next year. He urged administration officials to slow enactment of the new rules.

A leading advocate for consumers in their 20s, Young Invincibles, sounded a similar caution, suggesting in a letter to administration officials that additional steps may be needed to protect young people from rising premiums. Young Invincibles mobilized in 2010 to help pass the healthcare law.

And regulators in Massachusetts, which was the model for Obama’s law, recently warned that although many residents and small businesses in the state "will see premium decreases next year, a significant number will see extreme premium increases."

The law does include many new protections for consumers. Even those now sounding alarms emphasize the importance of those provisions, including guaranteed coverage for Americans with preexisting medical conditions.

"For most people, this will be a dramatic improvement," Zorn said.

The new law also is designed to make insurance more affordable for many consumers. Millions of Americans who make less than four times the federal poverty level ‘ or about $92,000 for a family of four ‘ will qualify for federal subsidies to offset the cost of their premiums if they don’t get insurance through employers.

But these new protections and benefits ‘ largely intended for Americans who do not get health coverage through their employers ‘ also threaten to drive up costs.

Next year, there will be new limits on how much insurers can charge older consumers. Insurers will be banned from charging more to women or people with illnesses.

The industry will have to offer plans that cover a new basic set of benefits, including prescription drugs, mental health, pediatric dental care and other services. And insurers will be prohibited from placing annual or lifetime limits on coverage.

The nonpartisan Congressional Budget Office estimates that insurance premiums for those who buy coverage on their own probably will be 10% to 13% higher in 2016, in large part because health plans will be much more comprehensive. Many consumers will probably pay less, however, because of the subsidies available in the law.

The healthcare law also includes a new tax and new fees on insurance companies that the industry says it will pass on to consumers.

The provision that will prevent insurance companies from charging older consumers more than three times what they charge young consumers has generated particular concern among regulators. In many states, insurers now can charge five times as much or more to people in their 50s and 60s.

The requirement was a top priority of the influential AARP. It is designed to make insurance more affordable to a group that often most needs insurance. But as rates come down for older people, they may increase for consumers in their 20s, regulators worry.

If that happens, young, healthy people could elect not to get health insurance and pay the small penalty in the law for not having coverage. That, in turn, would leave an older, sicker population in the insurance pool, a phenomenon that typically inflates premiums.

To avoid so-called rate shock, regulators in California, Oregon, Rhode Island and other states have asked the administration to phase in the new requirement over several years.

"It’s not an issue of whether we should get there. We should," said Oregon Insurance Commissioner Lou Savage. "We just want to make sure that healthy people don’t leave the market."

Administration officials have said they cannot postpone the rule because the law requires it to go into effect in 2014.

They point to provisions in the law designed to shield consumers in their 20s from higher premiums. Those under 26 can remain on a parent’s plan. The law also includes a slimmed-down health plan for people under 30 that is expected to cost less.

"Young people are going to get a huge benefit from the law," said Young Invincibles Deputy Director Jen Mishory.

Other groups have warned that the new package of benefits that insurers must cover may end up being so extensive that policies could become unaffordable.

The American Academy of Ophthalmology, for example, is urging some limits on vision coverage for children. The group supports the law’s requirement that insurance plans cover children’s eye care, but it worries about overuse of comprehensive eye exams on children who may not need them.

"We believe it is critical that these benefits remain affordable, available and do not drive up the cost ‘ which could result in fewer small businesses and individuals purchasing coverage," several groups representing eye doctors wrote in December in a letter to the Obama administration.

As next year approaches, it will be crucial to prepare consumers for some rate shocks, said Rhode Island Insurance Commissioner Christopher Koller, one of the nation’s leading regulators and a supporter of the law.

But Koller said he believes the market will settle down. "It is important to remember that this is a transition," he said. "We are getting to a more stable place."