Blue Shield of California says it expects rates for its policyholders to increase 13% on average in 2014, an increase executives say will be "legitimately below what people expected them to be."
Ready or not, state health insurance exchanges are due to launch open enrollment just three months from now. Some states are scrambling to meet that deadline, but others have already released a list of tentative rates that offer a surprising glimpse into how healthcare reform will work.
And though millions of individuals are expected to purchase insurance in 2014—many for the first time ever—the big question is how many people will actually follow through and make a purchase via the exchanges.
No "Doom and Gloom" in California
In late May, California and Oregon released a list of health plans that will sell insurance on their exchanges and the rates they'll offer. In California, the average premium for a person not eligible for a subsidy will be $321 per month for a plan with a $2,000 deductible, about on par with current rates. People eligible for the maximum subsidy—those with annual incomes greater than 138% of the poverty level—will be able to buy health insurance for as little as $18 per month.
"These rates are way below the doom-and-gloom scenarios we have heard," said Peter Lee, executive director of Covered California. "But let's be clear: Some consumers will see their premiums go up. There may be some sticker shock."
Lee said the affordable rates "are the result of insurers customizing networks in the 19 rating regions, giving doctors and hospitals the best pricing they could sustain."
Blue Shield of California said it expects rates for its policyholders to increase 13% on average in 2014, an increase executives said will be "legitimately below what people expected them to be" and one that's only slightly higher than the single-digit rate increases Blue Shield has imposed on the individual marketplace in the past several years.
Looking ahead, an analysis conducted in early 2013 by actuarial firm Millman predicted that 2014 rates in the California market would increase between 14% and 26% due to a number of factors, including a more comprehensive level of health coverage, which is required under all basic plans in keeping with the state's essential health benefits law. Coverage includes mental health and rehabilitative services.
Analysts say one factor that's helping drive down prices is a "narrow network" model in which health plans negotiate rates with a limited network of providers. In return for an expected increase in business, hospitals and providers agree to lower their costs for insurers, who in turn pass the savings on to consumers in the form of lower premiums.
"Providers are willing to negotiate lower reimbursement rates in the exchange for a stable volume of patients for these new plans," said Dylan Roby, PhD, an assistant professor with the UCLA Fielding School of Public Health.
In fact, Health Net's rates in Southern California prompted a Deutsche Bank analyst to send a research note to investors questioning why its rates were 13% lower than its closest competitor. Health Net spokesman Brad Kieffer said that its narrow networks allow the company to negotiate favorable rates that it passes on to consumers.
"It's a tried and true approach that's positioned us well for the future in the exchange world," said Kieffer.
In Oregon, exchange officials released tentative plan rates for the state's individual market in May. The exchange has 16 health plans signed up to sell insurance, and Cover Oregon spokesperson Lisa Morawski said the state expects rates to be "very competitive." Some of the rates are actually lower than Oregon's existing average premium of $217 per month for individual coverage. One insurer is offering a basic coverage plan that will charge a 40-year-old nonsmoker only $169 per month.
Competition is Key
In the insurance industry, as in any other business, competition helps dictate costs, and health exchanges are expected to have plenty of players vying for a new pool of consumers. The U.S. Department of Health and Human Services estimates 90% of consumers in the United States will have at least five insurers to choose from in their region while shopping on the new online marketplace.
In California, the lowest rates in the state are in Los Angeles County, which also has the largest number of insurers to choose from. A mid-range Silver Plan from Health Net will cost consumers $229 per month, the lowest rate in the state. Each of the state's 19 rating regions has at least three insurers selling plans.
And in Oregon, after seeing their original rates were much higher than their competitors, some of the 16 health plans selling insurance on the exchange submitted a revised list of premiums that were up to 15% lower.
"I think that's what we're going to see across the country," said Robert Zirkelbach, spokesman for America's Health Insurance Plans, in a statement. "Competition is a good thing."
States are also planning to pour millions of dollars into public outreach programs to market their exchanges. California plans to spend nearly $200 million on its marketing campaign and deliver ads in more than a dozen languages.
Keeping it Simple
One of the key concerns heading into 2014 is that the process of buying insurance online will be tedious and frustrating for potential applicants. That became an even bigger concern in early 2013 when the federal government issued a draft application form for enrollees that was 23 pages long.
The Centers for Medicare & Medicaid Services has since reconsidered that form, releasing a streamlined version in May that is just three pages long.
"Consumers will have a simple, easy-to-understand way to apply for health coverage later this year," said CMS Administrator Marilyn Tavenner in a statement. "The application for individuals is now three pages, making it easier to use and significantly shorter than industry standards. This is another step as we get ready for a consumer-friendly marketplace that will be open for business later this year."
There's also a concern about whether the federal government will be able to organize and build a central exchange to serve the states that opted not to create their own exchange. But officials say that project is on schedule.
"The federal marketplace will be open and enrolling people on October 1," said Jack Cheevers, CMS spokesman.
The website that will serve as the one-stop destination for states in a federally facilitated exchange is healthcare.gov.
Some Individuals Hard to Reach
Regardless of how low insurance rates are or how well insurance exchanges are marketed, millions of people are expected to remain uninsured in 2014 and beyond. A study of the California market commissioned by the Robert Wood Johnson Foundation estimates up to 4 million of California's 7.1 million uninsured residents will remain uninsured under healthcare reform.
While about one million of those residents are in the country illegally and thus ineligible for coverage, up to 25% will remain uninsured due to "a lack of affordable coverage options." Another segment will be "homeless individuals and people with significant mental health or substance abuse problems," while others "will not get the word about new options for coverage no matter the extent of outreach and education efforts," according to the study.
Other people who are currently uninsured—particularly young, healthy people—will likely opt to pay a fine for not purchasing insurance rather than pay monthly premiums for an entire year. The penalty for adults not buying insurance is $95 or 1% of their annual income if that total is larger. The maximum penalty for an entire family is $285 or 1% of family income.