Insurance Market Reform

In this new analysis, Avalere Health finds that average proposed premiums for individual market exchange plans will increase modestly in 2015, based on initial rate filings in nine states. Across the nine-state group, average monthly silver premiums will rise by 8 percent from $324 in 2014 to $350 in 2015. In particular, average monthly silver premiums will rise in eight of the states, ranging from a 2.5 percent increase in Rhode Island to a 16 percent average increase in Indiana. Oregon was the only state examined in which average premiums will decrease for 2015—falling 1.4 percent or $3 per month.
 

Health insurers participating in the new Marketplaces are filing rates for 2015 during the next few months. Some states have already released data on proposed rates. There is substantial economic, policy, and political interest in the magnitude of proposed rate changes. This brief provides background for understanding the economic drivers of proposed rates, state and federal rate review authority, the effects of rate changes on Marketplace enrollees and federal spending on premium credits, and the economic and political dynamics of the rate review and approval process.
 

Before we can evaluate the impact of the Affordable Care Act on health insurance premiums in the individual market, it is critical to understand the pricing trends of these premiums before the implementation of the law. Using rates of increase in the individual insurance market collected from state regulators, this issue brief documents trends in premium growth in the pre-ACA period. From 2008 to 2010, premiums grew by 10 percent or more per year. This growth was also highly variable across states, and even more variable across insurance plans within states. The study suggests that evaluating trends in premiums requires looking across a broad array of states and plans, and that policymakers must examine how present and future changes in premium rates compare with the more than 10 percent per year premium increases in the years preceding health reform.
 

The Affordable Care Act’s (ACA) 2014 open enrollment period for the individual health insurance market ended on March 31 and health insurers are already developing premium rates for the 2015 plan year. Insurers must submit their 2015 premiums to state and federal regulators this spring, with final approval decisions by the fall. Open enrollment for 2015 will begin November 15. This brief outlines factors underlying premium rate setting generally and then highlights the major drivers behind why 2015 premiums could differ from those in 2014. It focuses on the individual market, but considerations for the small group market are similar.

While there may be reasons to believe that premiums will increase substantially in 2015, particularly in less competitive markets, there are even stronger reasons to believe that premium increases will be moderate, and in line with underlying cost growth. The dominant force behind the surprisingly low premiums in 2014 remains intact—the strong incentives for markets to be highly competitive, which forces insurers to set premiums aggressively to attain or retain market share. These incentives should be even stronger in 2015 with increased enrollment and a more stable risk pool