So it's that time of the year on the calendar when private insurers who offer plans in the Health Insurance Marketplaces (HIMs) start to submit their "rate bids" for the next year, and some reporters have obtained information on these bids.  This is leading to some rather hyperbolic headlines, and reaction, about how the marketplaces may be falling apart under a cost explosion.  In fact, this is an annual experience that needs to be calmly understood, and we need more time -- and data -- to understand whether there is a broader trend going on here.  And last year, when the preliminary rates were filed for 2015, the same panic set in.

The Wall Street Journal has a quite balanced article on this and lays it out here.

What they show here is that premium rate increase PROPOSALS range from a very moderate 0.5% in Maine to a hefty 51.6% in New Mexico, and seven plans in seven states that have submitted proposals with premium increases in excess of 10%.

But there are several reasons to be cautious:
  • first, this is just the opening bid in what can be a relatively long negotiation with regulators, and it is quite common for these bids to be rejected;
  • second, obviously this is only a sampling of a handful of plans in a handful of states, so broader conclusions cannot be drawn from this about the tens of thousands of plan-firm choices offered across the U.S.;
  • third, experience in previous years has shown there is considerable volatility in the HIMs, as our research center demonstrated in a recent policy brief.  In particular, we demonstrated that in places where premiums tended to be lower in 2014, the rates increases were a bit higher; while in places where the premiums were higher, the premium increases were lower or even negative. This can be described as "market corrections" or "regression to the mean" that economists often see in markets, especially new markets.
What I believe is that we will see considerable market volatility in the HIMs for a few years until the number of plan choices and premiums settles down.  

Can we conclude that there is some underlying trend of cost growth driving these increases, as some want to speculate (for example, the insurers are now facing "pent up demand", or "moral hazard" as newly insured people use their plans)?  It is too early to tell, especially with such a small amount of data.  There is some evidence that health care cost growth is starting to accelerate a bit, but we need to watch that a bit more, and even in that data the growth is nowhere near what we saw in in the 1960-2000 period.

My view is that we need to wait until the FINAL rates are set for health insurance plans in the marketplaces, and we know what firms have entered and exited as well.  We will know this in the Fall of 2015, so some calm is warranted.