Starting next year, health insurance companies will have greater leeway when it comes to increasing premiums for their plans. In a final rule issued in April 2018, the Centers for Medicare and Medicaid Services made changes to the regulations that govern rate hikes. Beginning in 2019, insurance companies will have to submit new rates for review only when requesting a rate increase of 15 percent or more.
Affordable Care Act Rate Review Guidelines
Rate review matters because it keeps costs from skyrocketing without a formal review process. In other words, insurance companies can’t just double your premium rate whenever they want. Large premium increases must go through a process called rate review. During this process, a company proposes a rate increase along with justifications for the increase. A state or federal agency then decides whether the rate is justified.
The Affordable Care Act set forth stringent review guidelines and established that increases of 10 percent or more would be subject to rate review. If an insurer wants to increase its rates by more than 10 percent, then increased premiums must go through the rate review process first. With the new CMS rule change, however, premiums will only be subject to the review process for increase of 15 percent or more. This will make it easier for companies to raise rates without undergoing a formal review process first. The CMS rule also made it so that student health plans won’t be subject to rate reviews after July 1.
Effects of Rate Jumps on Consumers
Insurance rates vary widely throughout the country, but to consider the potential implications of the 15 percent threshold, take Illinois as an example. The state’s average cost for a 2018 Silver plan is $815 per month. A 10 percent increase would raise the average premium to $897 while a 15 percent increase would bring it all the way up to $937. Over the course of a year, a 15 percent increase would raise a subscriber’s payments by $1,467 and take $480 more out of his pocket than a 10 percent increase would.
Rate increases can take a toll on your healthcare budget. But not all consumers feel these jumps equally. Many people who get their insurance through the Obamacare marketplace are eligible for subsidies to help pay their premiums. In addition to family size and income level, the subsidy amount for which an individual or family qualifies is also based on the second-lowest cost of a silver-level plan in that geographic area. As premium rates rise, so do subsidy amounts. This structure largely cushions subsidy recipients from the effects of skyrocketing costs.
Not all people who purchase individual healthcare plans get subsidies, however. Those who don’t pick a marketplace plan or who earn too much to qualify for tax credits to reduce monthly premium costs will feel and bear the brunt of premium hikes.
Premium Hikes Regardless
It’s important to note that rate review is not a guarantee against large jumps in premiums. The past few years should prove that premiums will spike regardless. Companies must submit substantial rate increases to a formal review process, but the government can – and often does – approve these increases. This explains how residents of Aroostook County in Maine, for example, saw their premiums jump 110 percent between 2014 and 2018. It’s not at all unusual for insurance companies to request hikes that are well over the new threshold of 15 percent. For 2018, insurers asked to raise rates up to 39.6 percent in Washington D.C. and 54.3 percent in Virginia.
Not all rate hike requests are quite so steep. In Vermont, for instance, the largest increase that insurers requested was 12.7 percent. Under the 10 percent regulation, that increase required review. Under new guidelines, insurers would have been able to raise rates without any formal process involved.
