CA small biz hit with health care hikes

It wasn’t supposed to be like this.

Proposition 45 on the Nov. 4 ballot would have given the California insurance commissioner the power to limit health-insurance rate increases. It lost.

Opponents, including officials at Covered California, assured voters adequate price controls would be negotiated by the officials running the exchange — without Prop. 45. Covered CA is the state’s health insurance exchange set up under the federal Affordable Care Act, or Obamacare.

But for the state’s small businesses and their employees, those words have begun to ring hollow. As the new year rings in, some 64,000 Californians will see rate increases averaging more than 10 percent — in some cases, nearly 20 percent, according to the state Department of Insurance.

As the Los Angeles Times reported, that nets out to $23.5 million in “excessive” premiums for small business employers and employees.

Broken promises

Party politics only added to the controversy. California’s two Democratic U.S. senators, Barbara Boxer and Dianne Feinstein, threw their support behind Prop. 45. But other Democrats opposed it, instead backing Obamacare and the Obama administration figures brought on to ensure Covered CA succeeded in enrolling big numbers (unlike many other state exchanges).

Republicans, meanwhile, saw Prop. 45 as yet another effort to expand government regulation over not just Covered CA, but private insurance concerns.

State Sen. Ted Gaines, R-Roseville, seeking to unseat incumbent Insurance Commissioner Dave Jones, lambasted him for standing with Boxer and Feinstein. But although voters dumped Prop. 45, they also stuck with Jones.

Adamant that its increases are properly calibrated, “Aetna said its rate increase was justified based on the expected medical costs for employers,” the Times reported. Jones’ office had tried, but failed, to limit Aetna’s rate increases to  just 2.6 percent on the 64,000-strong small business group.

A domino effect

For Jones, Aetna’s calculations led to excessive rate hikes because the company misjudged the effect of Obamacare and Covered CA on its risk pools. Although other factors came into play, Jones’ office determined Aetna had wrongly assumed “that customers enrolled in new plans complying with the federal health care overhaul are less healthy than those in older policies,” according to the Sacramento Bee.

What’s more, Jones implied, Aetna bumped up its increases once it looked likely Prop. 45 would go down to defeat.

Pushing back against that interpretation, Aetna vowed through a spokesperson that Jones had it all wrong. Cynthia Michener, the Bee reported, “said that though rate increases are never easy, the rates are based on actuarially sound data and a reasonable projection of future cost. She said the firm Milliman provided Aetna with an independent actuarial analysis and certified the insurer’s assumptions and rates as reasonable.”

Previously, Aetna CEO Mark Bertolini had spoken out against the ACA, warning it would result in higher premiums.

Distortions

From a bird’s-eye view, however, some analysts have pointed out that Aetna’s rate increases are a rational result of the market distortions created by the ACA’s regulatory framework. As Scott Gottlieb argued at Forbes, “Obamacare was designed with the goal of commoditizing health insurance. The belief was that competition between plans would turn largely on premiums and cost sharing. This was seen as a way to hold down prices.”

What happened instead, Gottlieb explained, was that pushing down on competition in the areas of networks and care delivery discouraged competition between “different benefit packages and plan designs.”

In other words, the big, established coverage providers discovered they could create many variations on very similar benefit packages.

In a free market for health care, different plans would differ in their benefit packages as well — giving small business owners, for instance, greater options around not just scope of coverage but cost of coverage.

Instead, the ACA has dramatically narrowed their available coverage, leaving business owners with little alternative to Aetna’s hiked rates.