THE NEW HEALTH CARE 

Understanding the Rate Increases for Health Care Plans

Insurance companies have begun announcing rate increases for the health care plans they will sell next year on the Obamacare marketplaces, and ahandy new website from the federal government makes searching for rate change requests easier than ever.
Some of the rate increases are substantial. But for several reasons, simply looking at the current numbers can be misleading.
And when my colleague Reed Abelson wrote about requests that are coming in, she also noted that some rates are coming down.
Here are other things you should keep in mind.

These are just requests.

Many state insurance regulators choose to approve insurance rates before they are final. And the federal government, as part of Obamacare, set up a system in which it would scrutinize any rate increase of more than 10 percent. That means that the rate proposals under review right now are just that: proposals. Last year, many big rate requests were later amended under pressure from regulators. Some of the increases that look hefty now may turn out to be more modest.
Insurance companies have begun announcing rate increases for the health care plans they will sell next year, and some are substantial. Jim Young/Reuters 

We’re mostly seeing the really big ones.

Because the federal government reviews only plans with requested increases of more than 10 percent, for many states that’s all that’s published on the federal website. That may lead some people to draw a distorted picture of what’s happening to insurance rates, since only the biggest increases are currently searchable.

Some increases matter more than others.

The idea behind the insurance marketplaces set up by Obamacare is that insurance companies can jockey for customers by offering different services and prices. Most customers have a selection of insurance plans, but not every plan has proved popular. Lower-cost plans in certain categories have captured a majority of the markets.
Customer loyalty is lower than many experts expected: More than a quarter of 2014 customers switched plans for 2015 — many, according to a recent survey, to get a better deal.
Because customers are flocking to the cheapest plans in a given market, increases to those popular plans matter more than the increases to unpopular plans in the same market. If you bought a plan and face a big rate rise, you will face a hard choice between paying more and switching, which is why proposed increases to very popular products — as seems to be the case in Tennessee — are meaningful. But if a plan without many customers raises its prices, that’s less disruptive. And if there are still cheap, quality plans available, it appears that many customers may be willing to switch if their plan gets too costly.
My colleague Amanda Cox and I tried to capture this dynamic last year with an interactive map that allowed you to see the difference between renewing the most popular plan from 2014 versus shopping around. The numbers will be different this time, but it’s reasonable to expect that there may be similar spreads in premiums next year.
Ultimately, it will also matter what’s happening to other plans in these markets. More than 85 percent of people in the Obamacare marketplaces are receiving federal subsidies to help them pay for their insurance, and the subsidies are tied to the price of the second-cheapest plan in one category. That means that if prices go up across the board in a given market, customers won’t feel it much. What matters for most consumers is what happens to the price of the plan they want, relative to that specific plan.

The budget effect is complex.

The federal government is on the hook for subsidies linked to that particular second-cheapest “silver” plan. That means that the taxpayer bill for Obamacare will go up only if those plans are getting more expensive. This year, they rose modestly, on average. It’s too soon to predict next year, since we don’t know all the prices yet. But, again, most premium increases won’t hit the government’s bottom line as long as two low-cost plans remain in each market.
As Reed’s story laid out, there are good reasons premiums seem to be going up more than they did this year, and it seems reasonable to expect that there will be increases in many places, both for customers and the federal government. But it is still very early to know for sure.