Expect a Big Premium Hike in 2017
December 29, 2014 - National Center for Policy Analysis
Are your Obamacare premiums lower than you expected this year? Don't
celebrate quite yet. Stephen Parente, health finance professor at the University
of Minnesota, says premiums are lower than they would otherwise be because of
two temporary Obamacare programs that help insurers keep costs down. But those
programs expire in 2017, and that's when Parente says big rate hikes will
come.
Risk corridors and reinsurance are two Obamacare programs that are slated to
run through 2016. Risk corridors transfer funds to insurers whose costs are
higher than expected, while reinsurance compensates insurers whose enrollees
have medical costs above $45,000 in a single year. Senior Fellow John R. Graham
recently explained how these programs work in an NCPA report.
Ultimately, taxpayers are on the hook for these programs. Parente says the
programs allow insurers to charge lower premiums, because insurers will be
compensated if costs are too high. However, on January 1, 2017, the reinsurance
program and risk corridors expire. What will happen?
According to Parente's research with the University of Minnesota, premiums
after 2016 will increase quickly, especially for cheaper plans. Bronze family
plans could rise by 45 percent (from $9,000 to $13,000) while individual plans
could skyrocket by 96 percent (from $2,000 to $4,000). What will result? A rise
in the uninsured rate. Parente estimates a 13 drop in the size of the individual
health insurance market in 2017 alone, followed by a 1 percent decrease each
year for the next decade. That would mean the uninsured rate could reach 40
million within 10 years -- 10 percent higher than the uninsured rate today.
Source: Stephen T. Parente, "A
Lull Before the ObamaCare Rate Storm," Wall Street Journal, December 16,
2014.