Obamacare premiums in California may rise 8% next year

Could the Danish welfare state ever work in the United States?
Could the Danish welfare state ever work in the United States?

California's health insurance exchange estimates that its Obamacare premiums may rise 8% on average next year, which would end two consecutive years of more modest 4% increases.

The projected rate increase in California, included in the exchange's proposed annual budget, comes amid growing nationwide concern about insurers seeking double-digit premium hikes in the health law's insurance marketplaces.

Any increases in California, a closely watched state in the health law rollout, are sure to draw intense scrutiny during a presidential election. Republicans are quick to seize on rate hikes as further proof that President Barack Obama's signature law isn't doing enough to hold down health care costs for the average consumer.

Insurers in California have submitted initial rates for 2017, but the final figures won't be known until July after state officials conduct private negotiations.

Peter Lee, executive director of Covered California, underscored that the estimate was preliminary but said some one-time factors under the Affordable Care Act mean "2017 will be an adjustment year" for rates.

"We shouldn't put too much focus on this 8% number when we will know the reality in two months," Lee said. "There are a number of reasons 2017 will have higher rate increases than the last few years. But we believe in California we won't see the significant headwinds many other states are experiencing."

Lee said the expiration this year of two federal programs that have helped health insurers offset expensive medical claims and cover sick patients in general will affect premium rates across the country. In addition, he cited ever-increasing medical costs, particularly for expensive specialty drugs.

The nation's largest health insurer, UnitedHealth Group (UNH), already has said it will exit all but a handful of state exchanges after suffering substantial losses on individual policies. Lee declined to comment on whether UnitedHealth has submitted a bid to continue selling in Covered California next year.

Related: UnitedHealthcare to exit most Obamacare exchanges

Health-policy experts said the California rate projection mirrors an upward trend around the country as health insurers reassess their pricing and strategy under Obamacare.

"None of us should be surprised to see average rate increases that are slightly higher than last year," said Sabrina Corlette, a research professor at Georgetown University's Center on Health Insurance Reforms. "It's still really difficult to discern where we will end up."

Robert Laszewski, a health care consultant in Alexandria, Virginia, and a frequent critic of Covered California, said Californians will be fortunate if the 8% projection holds up.

"That is not a troubling rate increase," he said. "California is coming back toward the average. A bunch of states would die for just an 8% increase in 2017."

A bigger concern, Laszewski said, is the tepid growth in Covered California's enrollment and what that may mean for future premiums.

As part of its proposed budget for the next fiscal year, starting July 1, the state exchange expects its annual enrollment to grow by only 2% over the next year to 1.34 million. Covered California counts about 1.4 million as currently enrolled but that figure is expected to drop to 1.32 million as of June 30 through normal attrition as people get insurance elsewhere or drop coverage.

Sign-ups are crucial for keeping a diverse mix of enrollees and spreading the insurance costs across a pool of healthy and sick policyholders.

About 3 million Californians remain uninsured, but fewer than 1.4 million of them are eligible for premium subsidies under the Affordable Care Act, according to the exchange.

Related: Aetna CEO says he supports Obamacare amid losses

Lee said California already boasts one of the healthiest risk pools in the country, which insurers have cited as a main reason for the lower-than-average rate increases the past two years. He said the exchange signs up hundreds of thousands of new enrollees each year, but that's offset by high turnover as many people leave the marketplace for job-based coverage, Medicare or Medicaid.

Over time, Covered California expects the gradual increases in the state's minimum wage to $15 an hour could shift more low-income people from Medicaid to subsidized exchange policies as their pay increases. By 2020, the exchange expects to reach enrollment of 1.52 million.

"California grew very rapidly in the first few years and now we have reached a cruising altitude after three years," Lee said. "I think any questions about the sustainability [of exchanges] are just pure hot air."

Kaiser Health News is an editorially independent program of the Kaiser Family Foundation.

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