Insurers must make educated guesses on 2015 prices

Health insurers such as WellPoint Inc. that plan to hike prices on their Obamacare policies more than 10 percent in 2015 will have a much harder time than usual making their case to regulators.

That's because the tumultuous and back-loaded enrollment process for the Obamacare exchanges gives them far, far less information about their new customers than usual.

Insurers in Indiana must file their 2015 rates by mid-May - which is just two weeks after the last of their new exchange customers start coverage on their new plans.

That's nowhere near enough time for insurers to get the information they need to predict claims for 2015. And because of lag time for processing medical claims, insurers will have incomplete data even for customers that started coverage on Jan. 1.

"It is a concern," said Karl Knable, health actuary at the Indiana Department of Insurance. "None of the experience that they'll have at the time that they file 2015 rates will be what we call 'credible experience."'

So instead, insurers are piecing together the information they do have to make educated guesses about the premiums they'll need to cover claims in 2015. Joe Swedish, CEO of Indianapolis-based WellPoint, predicted in March that there will be "double-digit" premium increases.

One route, Knable said, is to start with the assumptions insurers made heading into 2014 and then make a case why those assumptions need to be adjusted for 2015.

That's what Indianapolis-based MDwise Inc. will need to do, since it had no individual insurance customers before 2014.

However, industry veteran WellPoint will build its 2015 rate filing by starting with medical claims filed in 2013, similar to what it did last year when preparing its rates for this year.

"We took 2012 claims experience to develop projected claims cost, adjusting for items such as change in morbidity of the population" and benefit changes that were necessary to comply with Obamacare, wrote Tony Felts, a spokesman for WellPoint's Indianapolis-based subsidiary, Anthem Blue Cross and Blue Shield, in an email.

Morbidity is medical jargon for the prevalence of sickness in a group of patients. Yet insurers will have very little information about the sickness levels in their individual insurance policies this year.

That's because Obamacare did not allow insurers to ask for or adjust their price based on customers' medical histories, as insurers had typically done before.

But insurers will use demographic information - age, smoking habits, household income and geography - to adjust their expectations for medical claims this year.

They also might get some signals from the small number of medical and pharmacy claims they do have from 2014. Pharmacy claims are typically processed more quickly than other medical bills.

"I'm sure every insurer is using as many resources as they can," said Paul Houchens, an actuary in the Indianapolis health practice of Seattle-based Milliman Inc.

Insurers will also have to factor in other parts of Obamacare in their 2015 prices.

A reinsurance program that is part of Obamacare - which in 2014 covers 80 percent of medical claims that fall between $45,000 and $250,000 - allowed insurers to reduce their rates about 10 percent this year, Knable said.

But that reinsurance gets less generous in 2015, which will shave about 2 percentage points off those savings, Knable estimated.

In addition, exchange enrollment, which in Indiana was on pace to top 85,000 in early March, is expected to double in 2015 as Obamacare's tax for not buying coverage shoots up to $395 per adult, or 2 percent of household income.

However, Indiana will go along with an Obama administration decision to allow individuals and small businesses to keep renewing their pre-Obamacare policies until 2016. That could keep larger numbers of healthy people out of the exchanges for longer than anticipated - because their pre-Obamacare policies will cost them less than an Obamacare policy would.