March 25 (Bloomberg) — Two months before health insurers must submit rate proposals for 2015 to government regulators, WellPoint Inc. fired a surprising shot across their bow by predicting it may ask for “double-digit-plus” increases.
Kathleen Sebelius, the U.S. Health and Human Services secretary, said March 13 that while premiums for health plans sold on the Obamacare insurance exchanges would rise next year, the increases would be “far less significant than they were before the passage of the Affordable Care Act.”
Individuals who bought their own insurance in 2010 paid 13 percent more than in 2009, a Kaiser Family Foundation survey found. The exchanges, which opened in October, serve those who buy their own individual or family insurance and aren’t covered by employer or government health plans. WellPoint’s statement on next year’s rates, the first by an insurer, startled some analysts while others said the company may be hedging bets as the Obama administration continually changes the rules on the Patient Protection and Affordable Care Act.
“The double-digit increase surprised me,” said Stephen Zaharuk, a New York-based analyst at Moody’s Investors Service, in a telephone interview. “If everything’s working according to plan, then the increases should be where the medical trend is, which should not be double-digit.”
The medical trend refers to the total cost of health care, including price inflation and patient utilization of services. It has grown about 5 percent to 6 percent in the last two years, and may increase to 8 percent or 9 percent this year, Zaharuk said.
Joanne Peters, a spokeswoman for the Department of Health and Human Services, declined to say if WellPoint’s prediction was in line with government expectations. “Since the Affordable Care Act became law, health-care costs have been slowing and premiums are increasing by the lowest rates in years,” Peters wrote in an e-mail.
WellPoint is the biggest commercial insurer in the Obamacare exchanges with 500,000 members through January. The company fell less than 1 percent to $100.24 at 1:15 p.m. New York time, after jumping 58 percent over the past 12 months through yesterday. On March 21, the Indianapolis-based insurer raised its 2014 earnings forecast after saying that it had expanded its customer base through Obamacare.
“We’re very optimistic as to where we are” on the exchanges, Ken Goulet, executive vice president for WellPoint’s commercial and specialty business, said at the company’s investor day meeting after the forecast was announced. The average age of those enrolled “came in right where we expected it to be.”
Still, the 2015 rates will rise because of an expected reduction in government payments to insurers, he said. The payments, known as reinsurance, are intended to help ease insurance companies’ transition into the public exchanges.
“On a year-over-year basis on our exchanges, and it will vary by carrier, but all of them will probably be in double-digit plus,” Goulet said.
WellPoint’s prediction is “on the higher side” but the insurer is “playing it safe,” Ana Gupte, a New York-based analyst at Leerink Swann & Co., said in a phone interview. “They don’t know what the risk pool looks like yet, and until they get some experience, they’re going to be more cautious.”
Insurers may also be responding to the administration’s recent extension of the deadline to renew old health plans that don’t comply with Obamacare requirements, and a new requirement that insurers broaden their provider networks.
“The rules of the road keep changing,” said Dan Mendelson, chief executive officer of Washington-based consulting firm Avalere Health. “These companies have to hedge their bets.”
Aetna Inc. spokeswoman Cynthia Michener declined to comment on her company’s 2015 rates.