Health insurance companies facing large claim losses caused by the legal mandates of recently enacted federal health care law have two primary options: petition for a large rate increase or leave the market. (A third option, cutting claim payouts, is more complex and not discussed here).
The Affordable Care Act (ACA) requires health insurance companies seeking more than a 10% increase in year-to-year premium rates must seek approval from state insurance regulators. Regulators are often unwilling to approve such requests based on fear of political implications that indicate the failures of health care reform. Even if such requests were granted, it seems unlikely that customers could handle the rate increased that in many cases would exceed 20% for 2017.
The other option – withdrawing from the market – is the path that will be chosen by more companies this year. Minnesota’s largest individual health insurance plan became the latest to announce its exit.
I expect similar news will continue around the country. United Healthcare, the nation’s largest provider of individual health insurance on the Obamacare exchanges, has already announced that it is considering leaving the insurance exchanges.
Consider that health insurance companies are quite sophisticated enterprises. Most have a plan in place to re-enter a more profitable segment of the market long before they announce their withdraw from the state insurance exchanges. Such is the case in Minnesota and with Unitedhealthcare. In other words, these companies want to play but not by under the rules laid out by ACA.