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One health insurer wants to cut rates 6.8 percent. Another wants to hike them 26 percent. What gives?

A major question looming over Obamacare's second year is whether consumers will find health plans affordable. (Photo by Jewel SamadJ/AFP/Getty Images)
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The first Obamacare enrollment period barely just ended, and it's already time for insurers in some states to file information on premiums for 2015. The 2014 rate filings last year became major political stories in a non-election year, so it's safe to assume the same will happen this year. And the 2015 rates will give us a glimpse into the future of the health-care industry.

In Virginia, insurers are seeking rate increases ranging from 3.3 percent to 14.9 percent in the individual market. In Washington State the range is even bigger: Insurers have requested between a 6.8 percent rate decrease and a 26 percent increase in rates.Though most of Washington's rate proposals were modest increases, averaging 8 percent, the 26 percent rate hike is the kind of thing that would be natural fodder for attacking the Affordable Care Act.

The 2015 rates will be an interesting study of how insurers are adjusting after the first Obamacare enrollment period, which marked a huge shift for the industry. People can no longer be denied coverage or charged more for a preexisting health condition, which meant insurers this year braced for an early rush of sicker customers while trying to attract healthier customers to balance out their risk pools.

Under the ACA, insurers essentially have to play by a shared set rules. They must offer a prescribed set of benefits, within the same limits on how much they can require consumers to pay for care out of their own pockets. So, a big premium increase for 2015 may tell you a number of things. It could mean an insurer got a sicker mix of patients than it expected, or a rate cut could be for competitive reasons or the result of a better-than-expected mix of patients.

The all-important caveat here is that these are just proposed rates, sort of like an opening bid. The rates could come down — or even go up if they're priced too low — after they're reviewed by the state's insurance commissioner.

If you haven't had the pleasure of reading through insurance rate filings, don't. They can span hundreds of pages, filled with actuarial projections and mind-numbing industry jargon. But they're useful documents for regulators and the health-policy world to understand what insurers are experiencing and what they expect going forward.

To help explain what's driving the wide variation in rates, I asked Sally McCarty, the former head of the rate review program at the Department of Health and Human Services, to review the bookend rate requests in Washington State. The first is for Molina Healthcare of Washington, which has proposed a 6.8 percent rate cut; the second is Time Insurance Company's proposed 26 percent rate increase.

Molina's rate cut

The insurer, which is looking to trim rates for the 1,223 customers in its HMO plan, is essentially making an educated guess. Before this year, Molina had only been involved in the Medicaid business and not the private market, so it's looking to its Medicaid experience as a guide for setting 2015 rates.

Molina said it believes it got the 2014 enrollment mix right, and it's expecting an even healthier pool in 2015 when there's more awareness of the ACA and the greater penalties for the individual mandate kick in. Because of that, Molina is anticipating just a 2 percent growth in the annualized trend rate — which measures the underlying cost and use of health-care services. So, a lower growth rate means fewer services are being used, which you'd expect from a healthier population.

The company is also making some changes to the benefit structure. The maximum out-of-pocket costs are increasing from $6,350 to $6,600 to meet federal limits. Molina is increasing the deductible in both its silver and gold plans, while reducing co-payments for some services. The company is also introducing a cheaper-level bronze plan this year to attract customers with lower premiums.

Time's rate hike

Like Molina, Time says it's making an educated guess for a preferred provider organization plan covering 1,816 people. However, Time is using 2013 claims data as a guide.

The company said almost all of its requested 26 percent increase is based on anexpectation of sicker customers, while just 1 percent of the increase stems from the cost of more comprehensive benefits. Time's filing doesn't talk much about 2014 pricing, but the company says it's assuming a 9.5 percent growth in the trend rate — much higher than Molina's 2 percent.

While Molina expects a healthier risk pool in 2015, Time isn't so optimistic. The company said it expects low-cost individuals to skip coverage because it doesn't think the individual mandate penalty is strong enough. It also said people migrating from Medicaid, employer plans and high-risk pools to the individual market are less healthy than people who previously bought their own coverage.

The ACA includes several temporary programs meant to protect insurers financially if they get much sicker customers than expected in the first few years of the law's coverage expansion. Time said expected payment from the temporary reinsurance program, which is funded by insurers to help pay for high-cost enrollees, kept the rate from rising even higher.

What to make of all this

McCarty said she spotted one major similarity in both rate proposals. "They're both pure projections, because neither one has had their policies in effect long enough to make really solid projections," said McCarty, now with the Georgetown University Health Policy Institute.

Insurers and actuaries have recently talked about the difficulty setting 2015 rates. They're dealing with a newly overhauled individual market, and they don't have much claims data from 2014 to go by. The insurance regulators will look to keep the rates down, but they also need to make sure that the insurers are solvent. McCarty said the proposed rates can still change a lot before they're finalized.

"I don't think we want to jump to conclusions," she said.