(Bloomberg View) — So the proposed 2016 Obamacare rates have been filed in many states, and in many states, the numbers are eye-popping. Market leaders are requesting double-digit increases in a lot of places. Some of the biggest are really double-digit: 51 percent in New Mexico, 36 percent in Tennessee, 30 percent in Maryland, 25 percent in Oregon. The reason? They say that with a full year of claims data under their belt for the first time since Obamacare went into effect, they’re finding the insurance pool was considerably older and sicker than expected.
Don’t panic, says Kevin Drum. This is just the opening bid in a regulatory dance that will end up somewhere very different: “A few months from now, the real rate increases — the ones approved by state and federal authorities — will begin to trickle out. They’ll mostly be in single digits, with a few in the low teens. The average for the entire country will end up being something like 4-8 percent.”
He’s right, of course, that the proposed rates will not end up being the final rate. Regulators are going to push back on these rates as hard as they can, with some success.
But in the case of the companies cited by the Wall Street Journal, I’d bet they’re not going to go down to 4-8 percent. As it turns out, the insurer filings are public information, available on state websites. And in the three cases where I could see supporting data about premium revenue and losses, those losses appear to be large. Moda of Oregon says that its claims were 139 percent of revenue, making for a margin of -61 percent. If I am reading their somewhat confusing table right, Health Service Corporation of New Mexico says it lost $23 million on revenue of $121 million. CareFirst of Maryland says that claims were 120 percent of revenue, which if we add in some money to pay for overhead, amounts to … less than or equal to what they’re asking from regulators. I can’t find claims experience data for Tennessee, but that state told the Wall Street Journal that it lost $141 million on exchange plans last year.
Now, this is not the whole story. These are only the biggest insurers in some states. Smaller insurers may price lower in an attempt to grow their business (though if their claims experience matches the biggest insurers, that’s going to be a recipe for a quick bankruptcy). And the median request on a list of the biggest insurers in 12 states was more on the order of 10-15 percent, and three states — Maine, Connecticut and Indiana — had insurers ask for increases in the low single digits.