Around the country, major health insurers are proposing to increase monthly premiums by 26 percent to 51 percent. This, predictably, has reignited the political debate over the Affordable Care Act. But there’s something more important going on, and it’s happening in the belly of the insurance industry.
Insurers are grappling with new rules to bring price stability to their businesses.
Before the ACA, insurance premiums were crazy. In one year, sick people buying their own insurance could see a 39 percent spike, but if you were young and strong, almost nothing.
Insurers can’t divide customers like that anymore, says industry veteran Jay Silverstein. Now they set one price for everyone on the individual market.
“When you have one big pool, you have to price towards making sure you are retaining your book of business and attracting new people in,” Silverstein says. “So ultimately you have to be very good at managing cost.”
The better a company manages those costs, the more stable the premium.
But it’s tricky. Companies must factor in expensive new medications and new customers that come along, and Silverstein says consumers have more choices.
“If a company comes out and says, ‘We have a 20 percent rate increase,’ I have the chance to shop and enroll with a new carrier,” he says.
Under Obamacare, any company looking to increase premiums by more than 10 percent must post that publicly.
Joel Ario, a former insurance commissioner in two states, says public scrutiny pushes insurers to find a middle ground.
“When I was the Pennsylvania commissioner, I told carriers that I would want to hold a public hearing on rate increases over 10 percent,” he says. “And I got mostly rate increases less than 10 percent.”
Ario says eventually insurers will figure out how to run their businesses with more price stability. He shrugs.
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