All incentives align for high initial rate filings

The Wall Street Journal has a good overview article of where insurers are thinking about their pricing for 2018 as they develop their offerings. The initial numbers are going to be ugly.

According to a nonpartisan report released by the Congressional Budget Office on Monday, the House Republicans’ bill, known as the American Health Care Act, could raise premiums by 15% to 20% for individual plans in 2018, compared with rates without the bill. These increases would largely be due to the end of penalties for people who lack insurance; the CBO suggested that fewer healthy people would enroll without the mandate, helping to raise average costs….

One important element isn’t fully resolved in the House Republicans’ blueprint: whether the federal government will fund cost-sharing subsidies that help pay for low-income consumers’ deductibles and other out-of-pocket charges….

“The more uncertainty, the higher the price,” said Martin Hickey, chief executive of New Mexico Health Connections. His nonprofit has seen a potential 40% premium increase on ACA marketplace plans.

There is normal medical price trend. There is also a highly uncertain policy environment. The environment is what will be driving most of the initial rate request.

Rate filings in May and June are not final. They are merely the start of a long series of conversations between the filing actuaries and the reviewing actuaries. Rates will go up, rates will go down, data will be requested and models will be tweaked.

So how do the incentives align?

Filing actuaries hate being wrong. They hate being wrong the most when it costs their employers money and them their jobs. They have every reason to file high. The reviewing actuaries don’t want to be wrong but they have a public trust component to their job where they need to make sure that the filing entity will be an ongoing viable business while not taking too much advantage of the public.

Republicans want high rates to be filed. It gives them a good headline when they’ll need one to keep their base in line. Insurance company executives won’t mind giving them a good headline as it is a low cost favor and the number that is filed in June will not be the number approved for November.

State insurance commissioners of either party won’t mind high filings. They will be able to issue press releases and have interviews where they can clearly, cleanly and honestly state that due to their work, the initial rates came down by 50% before Open Enrollment.

The players with the ability to influence rates all have a shared incentive to have initially hideous numbers filed in June and then see hideous shaved down to merely bad for the first day of Open Enrollment in November.