Bloomberg News

Molina, WellPoint Join California Exchange as Rates May Rise

May 23, 2013

California residents who choose to buy health insurance through the state exchange being created by the Affordable Care Act may end up paying higher premiums.

WellPoint Inc. (WLP:US), Molina Healthcare Inc. (MOH:US) and Health Net Inc. (HNT:US) were among 13 insurers selected to participate in the most-populous U.S. state’s health exchange, which begins enrollment Oct. 1. While the rates the companies will charge vary widely depending on a person’s circumstance, the director of the exchange said today that premium increases will be less than the 30 percent jump projected by consulting company Milliman Inc.

“There have been predictions across the board that rates were going to skyrocket,” Peter Lee, the executive director in charge of the Covered California health exchange, said today on a conference call. “Rates are going up at far lower than the best estimate Milliman thought might happen and way below the worst estimates of doom and gloom.”

Aetna Inc. (AET:US) has warned of “rate shock” when customers shop for plans in exchanges, citing health-law policies that mandate better benefits and prohibit the companies from refusing to cover the sick or charging older people more than three times as much as young adults. Aetna, along with UnitedHealth Group Inc. (UNH:US) and Cigna Corp. (CI:US), three of the four-largest U.S. health insurers, chose not to join the California exchange.

People who currently buy coverage for themselves or their families from Blue Shield of California, a nonprofit that is one of the largest insurers in the state, will see average rate increases of about 13 percent when they renew their coverage in the exchange, Paul Markovich, the company’s president, said on the call. Federal subsidies can greatly reduce the cost.

About 5.3 million Californians will be eligible to purchase coverage through the new exchange and about half may be eligible for the subsidies, according to the report.

Competitive Rates

Lee said individuals can expect to pay as much as 29 percent less than what small businesses now pay for coverage, though that estimate doesn’t provide a direct comparison to today’s costs to individuals. Some people, especially low-income residents, should expect to see their costs fall.

“We think the premiums you’re going to see are competitive,” Lee said.

In Los Angeles County, rates will be as low as $117 a month, before federal subsidies, for a 25-year-old buying a high-deductible plan intended to cover only “catastrophic” health costs, according to a report by Covered California.

President Barack Obama’s 2010 health-care system overhaul called for the implementation next year of health-insurance marketplaces in every state to sell coverage to people who don’t get it at work, often with government subsidies to reduce the cost. The health law will also expand some state Medicaid programs, which provide insurance for people living in or near poverty.

Milliman Estimate

Milliman, the Seattle-based consulting company, said in March that Californians who make too much money to qualify for subsidies may pay as much as 30 percent more for insurance as a result of the law.

Lee said Covered California hasn’t yet conducted an apples-to-apples study of how exchange rates for individuals will compare to current rates available to individuals. He used a comparison to rates in the small business market because California law prohibits insurers from refusing coverage to people employed at small firms, just as the federal law will require for individuals starting next year.

For the Blue Shield plans, a 40-year-old in north Los Angeles, earning less than $17,000 a year who buys individual coverage would pay $57 a month after subsidies, according to the report. Without subsidies, the plan would cost $252 a month.

The plan would cover about 70 percent of her medical costs, a level of coverage the law calls “silver.” Bronze-level coverage that pays 60 percent of costs, the minimum allowed under the law, would cost an average of $1 a month for the same 40-year-old, after subsidies.

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net

To contact the editors responsible for this story: Romaine Bostick at rbostick@bloomberg.net; Reg Gale at rgale5@bloomberg.net


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Companies Mentioned

  • WLP
    (WellPoint Inc)
    • $115.44 USD
    • 0.12
    • 0.1%
  • MOH
    (Molina Healthcare Inc)
    • $46.23 USD
    • -0.13
    • -0.28%
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