Guy Boulton

Milwaukee Journal Sentinel

With the fourth open-enrollment period set to begin this fall for the marketplaces set up by the Affordable Care Act, it’s becoming clear that the market for health insurance has not evolved as expected, or hoped.

The market is smaller than projected. The people who have bought health plans overall are sicker than predicted. And health insurers have incurred larger losses than anticipated.

As a result, some large national insurance companies, including UnitedHealthcare, Humana and Aetna, plan to abandon markets across the country next year. And health insurers in Wisconsin are proposing the largest rate increases yet for health plans sold on the online marketplaces throughout the state.

The proposed increases could range from 5.44% to 37.88% statewide, according to filings with the federal government. In Milwaukee County, the smallest proposed increase is 9.06%.

The increases could change before rates are finalized, and federal subsidies — which cap the percentage of an individual’s or family’s income that goes to health insurance — will shield most people from the increases.

But people who aren’t eligible for federal subsidies could see their health insurance premiums rise 20% or more next year.

To some degree, the increases were expected.

Two programs designed to provide a financial cushion for insurance companies facing the sweeping changes imposed by the Affordable Care Act end this year.

Health insurance companies also initially had little idea about who would buy health plans on the marketplaces, and they priced those plans too low. With two full years of claims data now in hand, the insurance companies have a better sense of how much they have to charge to at least break even.

“You are seeing what the underlying cost of the market is,” said Marty Anderson, chief marketing officer for Security Health Plan in Marshfield.

Plus, health care costs continue to rise, a trend that Anderson estimates will account for 4% to 5% of the increase in premiums for Security Health Plan next year.

Overhauled market

The Affordable Care Act overhauled the market for health plans sold directly to individuals and families, requiring health insurers to cover people with health problems, requiring health plans to include specific benefits and capping how much older people could be charged compared with younger people.

"It’s a different world than we used to live in,” said Rob Plesha, vice president of actuarial services for small group and individual business for Gundersen Health Plan and Unity Health Insurance.

But two intertwined challenges have since emerged.

First, fewer people — especially people who are healthy — have bought health plans on the marketplaces than projected, despite the penalty for not having health insurance.

The Congressional Budget Office projected that 21 million people would be covered by marketplace plans this year. Instead, an estimated 10 million people will be covered by the end of the year.

The people who bought those health plans also are older and sicker than expected, said Brian Blase, a senior research fellow at the Mercatus Center at George Mason University.

Second, the health plans on the marketplaces are relatively expensive for everyone but those with the lowest incomes.

“We are not seeing evidence that the plans are attractive for people with middle-class incomes,” Blase said.

The cost has dissuaded healthy people from buying health plans — and healthy people are needed to offset the cost of people who are not.

That is partly why health insurers are losing money on the online marketplaces and seeking steep increases.

The caps on how much insurers can charge older people also increase the cost for younger people, making it more likely they’ll skip buying insurance.

For employers and employees, the average premium nationally for single coverage last year was $6,251 and for family coverage it was $17,545, according to an annual survey by the Kaiser Family Foundation, a health policy research organization, and the Health Research & Educational Trust, an affiliate of the American Hospital Association.

That doesn't include deductibles and other out-of-pocket expenses. And insurance through an employer — at least for family coverage — typically costs less than insurance sold directly to individuals and families.

For certain, the Affordable Care Act has increased the number of people with health insurance. Roughly 20 million more people in the country now have coverage, and surveys have found declines in the number of people who have problems getting health care because of the cost.

But more people have gained coverage through expanded Medicaid programs than through the subsidized health plans sold on the marketplaces — even though about half of the states have not expanded their Medicaid programs.

A small share

Health plans sold directly to individuals and families account for a small share of the overall insurance market.

Roughly 17.6 million people are covered by plans sold in the so-called individual market, up from an estimated 12 million people before the Affordable Care Act. In contrast, 150 million people are covered by health plans offered by employers.

For this year, 239,034 people in Wisconsin signed up for health plans sold on the marketplaces by the end of the open-enrollment period. That doesn’t include tens of thousands more who buy health plans without going through the online marketplaces.

More than 90% of the people in the state and 83% nationally who bought marketplace plans were eligible for subsidies in the form of tax credits this year.

Those credits are available to people with incomes up to $47,520 for one person and $97,200 for a family of four. But the tax credits are relatively small for people with incomes close to those thresholds.

“Affordable is probably a loose term for those people,” Plesha said.

For example, in Milwaukee County, a family of four with a household income of $80,000 and parents who are 33 would receive a subsidy of $290 a month, or $3,480 a year. Yet the marketplace plans in a common tier range from $10,620 to $16,728 a year, plus deductibles and out-of-pocket expenses. So that family still would pay $595 a month, or $7,140 a year, for insurance for the lowest-cost plan.

The group hurt the most is people who don’t receive federal subsidies.

“I’m going to be one of them,” said Todd Catlin of Transition Health Benefits, an insurance broker in Brookfield.

Catlin expects to pay at least $21,600 next year for family coverage, and that’s with a $5,000 deductible.

Competition helps

Milwaukee County and Wisconsin, which have relatively competitive insurance markets, are in a better position than many others, even though insurance companies such as Anthem, UnitedHealthcare and Arise Health Plan have withdrawn, or plan to withdraw, from some areas of the state.

Still, companies expected to offer insurance on the marketplace in Milwaukee County for next year include Molina Healthcare; Network Health Plan, owned by Ascension Health and Froedtert Health; and Common Ground Healthcare Cooperative. And Children’s Community Health Plan is set to enter the market.

The final rates for next year also could be lower than the proposed increases would suggest.

Molina, for instance, proposed an average increase of 31.32%. But Scott Johnson, president of Molina Healthcare of Wisconsin, said the actual increase will be substantially less than that.

“We will be competitively priced for next year,” he said.

Paradoxically, the potential increases in premiums next year could be a sign that the market is moving to some sort of stability.

Molina, which has lost money on its marketplace plans in Wisconsin, expects to be profitable next year, Johnson said.

Security Health, too, expects next year to be the turning point for its plans, Anderson said.

Several changes could help improve insurers’ results on the marketplaces in coming years. Among them:

People will no longer be able to remain in so-called transitional plans after next year. The people who stayed in those plans tended to be healthier. “That will make a difference,” Anderson said. “There are a lot of transitional plans out there.”

The federal government has put in new rules to make it harder for people to buy health plans after they learn they need medical care. An industry study found that medical claims by people who bought insurance outside of the open-enrollment periods last year were 57% higher in the first month compared with those who bought during the open-enrollment period.

Still, the potential price increases will make it harder to persuade more people to buy health plans on the marketplaces in Wisconsin and throughout the country. As a result, the market for health plans sold directly to individuals and families may end up being smaller, more expensive and less competitive than envisioned.

“If there was an easy solution,” Plesha said, “we would have found it 50 years ago.”

This story was clarified on Aug. 24 to add Common Ground Healthcare Cooperative to the list of companies expected to participate on the insurance marketplace in Milwaukee County next year. Also, Managed Health Services Insurance Corp., which does business as MHS Health Wisconsin and is a unit of Centene Corp., was dropped from the list because it is pulling out of the Wisconsin marketplaces.