Pacific Research Institute senior fellow: California's vow to keep insurance rates down is 'fiction'
California’s health exchange will suffer from the same problems facing other state and federal exchanges, according to a think tank known for being critical of the Affordable Care Act.
Covered California announced earlier this month the average cost of buying health insurance through the exchange will increase 13.2 percent during the next enrollment period, beginning Nov. 1.
This compares to around 4 percent in each of the last two years. These relatively low prior increases prompted the exchange to tout its “active purchaser” model as one where consumers were able to get the best value in the country.
Covered California’s “active purchaser” model allows it to contract with specific insurance carriers in order to provide “optimal combination of choice, value, quality and service.”
The exchange convinced itself that its power of 'active purchaser' -- for insurance policies offered on the state exchange -- would prevent it from suffering the problems experienced nationwide, said John Graham, senior fellow with the Pacific Research Institute, a San Francisco-based think tank. This is "fiction," according to Graham.
“All over the country, Obamacare's exchanges are in a death spiral: every year premiums go up by double digits, more healthy people drop out, driving up medical claims, which forces insurers to increase premiums even more,” he recently told Patient Daily.
Covered California had believed it would avoid this by basically forbidding consumers from exercising any choice in plan design, Graham said.
“It believed that by commoditizing offerings by insurers, it would keep premiums low,” he said. “The announced premium hikes prove this is a fiction. Obamacare in California is in just as much trouble as it is everywhere else in the country.”
The exchange’s executive director, Peter Lee, announced the increases at a press conference, blaming health care costs -- specifically a rise in drug prices -- and the end of federal finances designed to help in the first years of Obamacare.
“While all plans are experiencing different cost pressures, we can be confident their rate increases are directly linked to health care costs, not administration or profit, which averaged 1.5 percent across our contracted plans,” Lee said, according to a Los Angeles Times report.
Avalere, a company that tracks and advises on health care challenges and costs, recently reported that lower-than-expected exchange enrollment, higher health care costs among enrollees and the end of the reinsurance and risk corridor programs are all likely contributors to premium spikes in the state exchanges starting in 2017.
Graham said blaming the cost of prescription drugs and the end of some federal subsidies does not stand up to scrutiny.
The research fellow cited the Milliman Medical Index, prepared by consulting actuaries, which reported that health costs for employer-based plans experienced the “lowest annual increase in 15 years” this year, at 4.7 percent.
Prescription drug spending grew 9.1 percent, down from 13.6 percent in 2015. IMS Health, a leading provider of health market intelligence, forecasts U.S. prescription spending will increase around 4 percent annually through 2020, according to Graham.
He went on to state that “reinsurance” and “risk corridors,” both of which anticipated that insurers might have trouble estimating early costs, are scheduled to expire at the end of 2016.
Kaiser Family Foundation, in its third survey on uninsured Californians, reported on Aug. 18 that 72 percent of the previously uninsured have gained coverage since Obamacare went into effect.
Among participants now insured, roughly 33 percent are covered through the state’s Medi-Cal program, 21 percent by an employer, 11 percent through the state’s insurance exchange, Covered California, and 8 percent through another source.
Organizations in this story
Covered California San Diego, CA
Kaiser Family Foundation 2400 Sand Hill Rd Menlo Park, CA 94025
Los Angeles Times 201 W 1st St Los Angeles, CA 90012
Pacific Research Institute 101 Montgomery Street San Francisco, CA 94104