Insurance premiums are going to spike this fall — big time

 

The final regulations on health insurance rates came out today, and the administration left a lot of the costliest Obamacare provisions intact.

This means health insurance premiums are going to spike this fall. In many markets, perhaps substantially.

It was an odd political decision. Delayed implementation of some of the costlier provisions would have gone largely unnoticed by most consumers. Even the political left would have probably accepted a delay if it made the law’s overall implementation go more smoothly. On the flip side, once premiums spike this fall – and they will – the ensuing backlash could cost the Administration even more support for the law.

The new provisions will raise premiums mostly on the young (and healthier) members that plans need to attract into the market in order to make Obamacare viable and the risk pool sustainable. This seems to be a case of ideology (and a desire to exert the full weight of federal oversight on insurers) trumping pragmatism and prudent governance.

In the past, the Medicare agency has used its authority to delay implementation dates in order to blunt some of Obamcare’s costlier provisions. Not this time. To those ends, starting in January 1, 2014 for “non-grandfathered health plans” in the individual and small group markets, both on and off the exchanges, insurers must implement the full scope of the law’s insurance market regulations.

That means offering to renew coverage for all comers (guaranteed issue); not taking health status into consideration when setting premiums (community rating); and charging older individuals no more than three times the rate for younger individuals (the so-called 3-1 age-based rating).

It’s this last provision that would have been the easiest one to delay. And it’s this provision that will perhaps be the most costly.

Most private health plans concede that they currently have anything from a 5-1 to 7-1 disparity between the rates charged to older (and costlier) members and younger (healthier) beneficiaries. They need to get that ratio down to 3-1 by next year. Good luck. The only way to bring the price structure down to this new ratio is by hiking premiums for younger members – big time.

That’s exactly what will happen this fall.

 

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