Tennessee's biggest health insurers are requesting big premium hikes for next year's federal marketplace due to a number of factors, including an older, sicker than average enrollee population.
According to state filings, BlueCross BlueShield of Tennessee is requesting the state approve a 19 percent increase. Humana is requesting a 14.4 percent increase, and Cigna is requesting an increase of 7.5 percent.
Though health insurance premiums rise with inflation every year, both consumers and industry players have been watching to see if the Affordable Care Act and federal marketplace would significantly affect that rate of increase. Insurers across the country this year faced the challenge of setting prices for a brand new federal market and their 2015 rates should provide some perspective on their first year of business.
A number of market factors could cause higher than average price increases on a state-by-state basis. Though Tennessee had some of the lowest premiums in the country from BlueCross in the first year of the marketplace, the state's sicker-than-average population and lack of competition among insurers could drive up premiums.
"Overall in Tennessee, fewer younger, healthier people signed up to balance the risk pool for marketplace plans," said Roy Vaughn, vice president of corporate communications for BlueCross. "Those people who did enroll were less healthy than expected. Our claims experience is indicating that the amount of medical care required for them has been considerably more than we projected."
Ideally, an insurance company enrolls more healthy people — who don't use the system much — than sick people, essentially allowing the company to cover its claims expenses and pocket any unused premiums as profit. But BlueCross reports the current year will produce a major loss for the company, and next year's goal is to break even.
"We're losing money on this group of individuals," Vaughn said. "Based on the medical claims for this year, it could be in the tens of millions of dollars. It's difficult to project at this point."
BlueCross commands 88 percent of the federal insurance market in Tennessee and provides the majority of non-marketplace insurance as well. (It is the only marketplace insurer in the state's Cumberland region, east of Wilson County and west of Knox County.) The company's financial strength, Vaughn said, allows the company to take the long view — for now.
"Anything that we propose for 2015 is meant to get us to break-even and begin to achieve something that is more sustainable in the long term," he said. "Certainly because of our financial strength, we can do this short term and serve those individuals at a loss. But that's not a sustainable model."
Vaughn also said that high levels of usage could even out as the market grows and sicker people previously kept out of the market due to pre-existing conditions or financial reasons obtain coverage and improve their health over time.
"We do believe that demand will stabilize over time, but even that's a projection," he said.
As the market matures and usage trends become clearer, more companies are expected to join the fray and potentially put a ceiling on future premium hikes.
"It's no different than any other consumer good. If there are multiple companies manufacturing the exact same product, people look to establish and defend market share," said Rich Novack, president and general manager of Cigna in Tennessee. "There's a potential for a price war, and in that price war, the consumer wins."
The insurance companies have submitted their requested rates, which would go into effect in January 2015, with state officials. Following a compliance and corrections period, the deadline for final approval of rate increases is Sept. 4.