Thinking about health - Quiz of the day: Will next year's insurance rates go up or down?

It’s now the silly season for insurance rates with government agencies, consulting groups, and the media all speculating about next year’s premiums. Will your insurance premiums go up or down this fall? Never before have I seen such intense interest in insurance rates which editors have usually considered a snoozer of a story.

It’s no wonder, though, that insurance rates are hot news. They’ve become as politicized as the Affordable Care Act itself. Supporters of Obamacare have focused on what people pay for health coverage—remember all that stuff about it being affordable? And opponents? Well they jump into overdrive when any shred of evidence points to higher rates. So what’s really going on?

For starters you’re apt to hear a lot of talk about average increases or decreases. Forget about them!  Averages are just that---averages. That reminds me of the old joke: Did you hear about the statistician who put her head in the oven and her feet in the refrigerator? She said, “On average I feel just fine.”

Although Obamacare supporters, opponents, and state insurance regulators use them to indicate a general direction of where rates are headed and sometimes twist them to suit the political points they want to score, most of us don’t pay average rates. “The end game is the actual rate someone pays,” says Jim O’Connor, an actuary with the consulting firm Milliman. The increases themselves, he adds, don’t tell you which policy has the most affordable rate. Some people will pay higher premiums in 2015; others will pay less.

What premiums a company charges for next year will depend somewhat on what it charged this year. O’Conner explained that a carrier which charged high rates in 2014 may be asking for lower rates for 2015 to make its policies more competitive.  Insurers that sold coverage with lower premiums last year in an effort to grab market share may be raising them for the next round.

In those cases, a company may have experienced a lot of sick people signing up for coverage. That means a lot of claims to pay and the need for higher premiums next year. Remember insurance companies are not charitable institutions.

In Colorado, for instance, Denver Health, a safety net health system, has asked for a 17.5 percent increase in premiums because it says they have been taking care of really sick patients and that requires more resources such as medications and testing. Access Colorado has also asked for a hefty 22 percent increase, but another carrier Colorado HealthOP wants to cut its rates by 10 percent.

O’Connor told me that pattern is pretty typical in most states.

Is Obamacare to blame for the rate increases many will see?

The answer to that requires some understanding of how premiums are set. Determining rates involves a complicated mix of variables, which include the cost of medical care that continues to rise although at a somewhat slower pace than in past, the number of sick people in a company’s risk pool, and now the impact of the pricey hepatitis C drug Sovaldi.

But Obamacare does play a role, too. Government fees imposed on carriers will boost premiums for some and so will the beginning of a phase-out of government payments that the ACA called for to help out insurers. The “transition” program for people who had old policies with non-standard benefits also plays a large part.

Most states allow consumers with those old policies to keep them until 2017, and insurers think the ones keeping them are healthy and young. Sick older people are trading them in for new coverage. Depending on how many have switched, that alone could add as much as 15 to 20 percent to a premium.

The old advice about shopping around still stands and will be super important for those with exchange policies. To help out consumers, avoid last year’s marketplace meltdown, and keep people insured, it might be too easy to find yourself with a high-priced policy you don’t want or can’t afford. Buyer beware may be the best advice for now.