Four takeaways: California’s 13% exchange premium increase

California’s Obamacare premiums are set to rise an average of 13.2% for 2017, according to Covered California, the state’s Obamacare exchange.

That’s up from approximately 4% in each of the last two years.

Peter V. Lee, executive director, Covered California, said in a statement that the increase reflects the cost of medical care for consumers, not excessive profit.

“Under the new rules of the Affordable Care Act (ACA), insurers face strict limits on the amount of profit they can make selling health insurance,” Lee said. “So, while all plans are experiencing different cost pressures, we can be confident their rate increases are directly linked to healthcare costs, not administration or profit, which averaged 1.5% across our contracted plans.”

Additional reasons for rate increases, according to Covered California, include:

A one-year adjustment due to reinsurance, a funding mechanism in the ACA designed to moderate rate increases during the exchange’s first three years. The American Academy of Actuaries predicts that this will add between 4% and 7% to premiums next year.

Some consumers enroll in health insurance only after they become ill or need care.

The escalating cost of healthcare, especially specialty drugs.

Some consumers using healthcare services who were unable to obtain it before the ACA was passed.

Given what will occur in California, what should executives be aware of? What does the future hold for exchanges nationwide?

Key takeaway #1: Higher rates in California foreshadow higher rates nationwide

JimWhislerCompared to others, California has been viewed as a state with better than average premium increases. “But if premium rates rise 13.2% in California, as indicated, I think we will see a lot of other states’ premiums going up materially more than that,” says Jim Whisler, principal, Deloitte, Minneapolis, Minnesota. He’s heard that California has a healthier risk pool than many other states, which also factors into his opinion.