Does Obamacare Justify These High Premiums?

The Patient Protection and Affordable Care Act — a legislation championed by President Barack Obama — mandates that a minimum set of health insurance benefits be extended to all Americans, regardless of any preexisting conditions, forcing insurers to cover even the sickest applicants. Because of these new requirements, insurers are expecting costs to skyrocket, and as a result, many are preparing to raise premiums to cover these increased expenses.

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Maryland’s biggest health insurer, CareFirst, has proposed raising premiums for individual policies by an average of 25 percent next year, according to information received by the Washington Post. However, the CareFirst BlueCross BlueShield plan must still be approved by the state, and regulators will likely give the double-digit increase a close examination. Maryland is among 31 states that have the authority to deny rate increases, giving regulators final authority over whether changes to health coverage required by Obamacare justify the higher premiums.

Health insurance providers across the country are proposing changes to premiums for the plans created for the health insurance exchanges — online marketplaces for individuals to compare and purchase policies — that will open for enrollment on October 1. As CareFirst’s proposal indicates, many companies will not hesitate to increase premiums significantly and the blame will be placed on the new federal regulations. Rates will also increase because the health law requires insurers to provide a wider range of benefits.

Maryland became the third state to release health insurers’ proposed premiums under the Affordable Care Act last Tuesday. Comparatively, insurers in Vermont and Rhode Island have planned smaller increases, while states with fewer regulations than Maryland — like Kentucky and Alabama — could see rates increase even more to meet the federal requirements. Scott Gottlieb, a physician and a resident fellow at the conservative American Enterprise Institute, believes that the average rate increase will be about 25 percent.

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Currently, CareFirst provides insurance to 70 percent of Maryland’s residents with individual policies, while about 770,000 Marylanders, or 13 percent of the state’s population, do not have coverage. When the mandates required by Obamacare kick in next year, the company expects a huge influx of sick people to drive up costs, according to its filings with the Maryland Insurance Administration. “The biggest driver of the increase is opening up the market to all comers,” CareFirst Chief Executive Officer Chet Burrell told the Post. “The premiums reflect that.”

Insurers have long been saying that Obamacare will cause a “rate shock,” though critics have argued that companies are exaggerating the problem. Many supporters of the legislation have contended that the proposed increase overestimates the cost of new enrollees. “The rate increase is based on worst-case scenario assumptions,” Tim Jost, a law professor at Washington & Lee University, told the publication. “They’re really predicting dramatic increases in use of services across the board.”

Aetna (NYSE:AET) and Coventry (NYSE:CVH) — competitors of CareFirst — did not specify anticipated rate increases in their filings, but Aetna did cite Obamacare’s requirements to cover new benefits and cover those with preexisting conditions as two factors “driving” its proposed 2014 premiums.

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