July 27--Defying dire predictions about health insurance rate shock across the country, California's Obamacare exchange negotiated a 4% average rate increase for the second year in a row.
The modest increase for 2016, announced Monday, may be welcome news for many of the 1.3 million Californians who buy individual policies through the state marketplace, known as Covered California.
California's rates are a key barometer of how the Affordable Care Act is working nationwide, and the state's performance is sure to be hotly debated among supporters and foes of the healthcare law, including the current crop of presidential candidates.
Outside California, critics of Obamacare have seized on the fact that major insurers in several states have sought rate hikes of 20% to 40%.
Peter Lee, executive director of Covered California and a former Obama administration official, said he relished the opportunity to prove that the healthcare law is working well.
"We have Chicken Littles who keep saying the sky is falling tomorrow and rates will skyrocket through the roof," Lee said in an interview.
"This proves them totally wrong. For the second year in a row, Covered California has delivered premium increases dramatically below the rates we have seen historically in the individual market," he added.
But he acknowledged that the state has plenty of unfinished business and that some families will face hefty rate hikes.
About 30,000 people, or 2% of enrollees, will see their premiums increase in excess of 15% if they don't change health plans.
Overall, 44% of Covered California customers said they find it difficult to pay their monthly premiums now. And some people have indicated they feel shortchanged in terms of the doctors they can see and the service they get from their health insurer or the exchange when problems arise.
California's exchange posted very little enrollment growth in its second year despite fairly stable rates. The next open enrollment begins Nov. 1 for policies effective in January.
But a variety of factors gave state officials a strong hand in negotiating with 10 returning insurers and two new companies -- industry giant UnitedHealth Group Inc. and New York startup Oscar Insurance Corp.
In all, Lee said, the state's negotiations lowered premiums by about $200 million compared with the higher rates health plans originally sought. Those savings benefit consumers and federal taxpayers, who are subsidizing nearly 90% of Covered California customers.
Together, insurers are projected to post a slim 1% profit margin on their exchange policies under these rates.
These premiums are still subject to state regulatory review and public comment through September.
Starting Aug. 3, consumers can check next year's rates online at www.coveredca.com, when the exchange posts an updated calculator.
Despite tepid enrollment growth this year, Covered California maintains a large and diverse mix of policyholders. Health insurers say they have been generally satisfied with the size of the market and haven't seen any evidence yet of a jump in medical claims from an overabundance of sick patients.
One reason for the healthy mix of enrollees is an unpopular decision Covered California made right as it launched in late 2013. Amid a national uproar, the exchange bucked the Obama administration and forced its participating insurers to cancel existing individual policies by the end of 2013.
That decision quickly moved people into coverage that fully complied with the healthcare law and created one giant risk pool for rating purposes.
"In doing it, we basically ripped the Band-Aid off at one moment and a made a better market overnight," Lee said.
Unlike most other states, California actively negotiates with insurers over rates and doesn't automatically allow every company to participate in its insurance marketplace. It also simplified the shopping process for consumers by setting standard copays, deductibles and other benefits for each level of coverage.
Those moves push health insurers to compete more directly on price. The Affordable Care Act also makes switching policies easier, though consumers interested in staying with certain medical providers must check the networks carefully.
Consumers who are willing to shop around and move to the lowest-cost plan on their metal tier, such as bronze or silver, could cut their premiums by 4.5% on average, according to the exchange.
San Luis Obispo resident Mary Chalmers switched insurers last year after getting fed up with her health plan's narrow network.
"It's still frustrating hunting around to see who will take what policy," she said. The healthcare law "has improved things greatly but we still have a long way to go. A significant portion of hardworking people can't afford it."
Still, Covered California said 20% of its customers will see their premiums go down next year -- a rarity in the pre-Obamacare world.
"When is the last time any of us saw our premiums go down?" said Gerald Kominski, director of UCLA's Center for Health Policy Research. "It looks like Covered California continues to be a very successful negotiator. There has been a lot of concern nationally that this round of rate increases would be much higher."
Much of the downward pressure can be seen in the highly competitive Southern California market, where many insurers and medical providers are jockeying for patients.
Premiums are going up less than 2% in Los Angeles and Orange counties, while premiums in Northern California will rise by 7%, on average.
This regional disparity in costs has existed for years. Most experts attribute it to the market clout Sutter Health and other big hospital chains hold in the northern part of the state.
The exchange sought to address one frequent complaint about a shortage of healthcare-plan choices in five underserved regions. Eight percent of enrollees only had one or two plans to pick from this year.
UnitedHealth, which left California's individual market in 2013 and spurned the state exchange, will sell in five of 19 rating regions, primarily rural areas in Northern California.
The other new entrant, Oscar, will sell exchange policies in Orange County and west L.A. County.
Blue Shield of California is levying some of the biggest rate hikes -- up to 23% for some west L.A. policyholders and 44% for some customers in the Central Coast area who bought Platinum policies.
Covered California said Blue Shield's average rate increase statewide is a more modest 2.3%.
The San Francisco insurer said the largest rate increases only apply to the most expensive Platinum plans in various markets, reflecting the higher costs incurred on those policies.
Mia Campitelli, a company spokeswoman, said Blue Shield also incurred additional costs from expanding into every zip code statewide and needing to contract with some more expensive medical providers.
Blue Shield said its rates on the most popular Silver plans went down in nine of the state's 19 regions.
"This is the first year we had actual data to set prices," she said.
Some critics of the healthcare law insist that the real cost of Obamacare isn't known yet because insurance companies are heavily subsidized during the first three years of the rollout.
Robert Laszewski, a healthcare consultant in Virginia who has closely tracked the overhaul, said it appears that California officials are suppressing premiums for another year to give enrollment a boost.
"Tough regulation can put off the real costs, but it can't do it forever," he said. "This is all too fragile if rates popped."
A federal reinsurance program that helps protect insurers from financial risk helped lower rates in California by two percentage points, from 6% to 4%, Lee said.
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UPDATED
1:17 p.m.: Comments from Blue Shield and some healthcare analysts were added.
