Eight percent spike in Obamacare premiums expected in California next year

California's health insurance exchange estimates that its Obamacare premiums may rise 8 percent on average next year, which would end two consecutive years of more modest 4 percent increases.

The projected rate increase in California, included in the exchange's proposed annual budget, comes amid growing nationwide concern about insurers seeking double-digit premium hikes in the health law's  insurance marketplaces.

Any increases in California, a closely watched state in the health law rollout, are sure to draw intense scrutiny during a presidential election. Republicans are quick to seize on rate hikes as further proof that President Barack Obama's signature law isn't doing enough to hold down health care costs for the average consumer.

Insurers in California have submitted initial rates for 2017, but the final figures won't be known until July after state officials conduct private negotiations.

[Also: Finding doctors, drug costs forecasted as barriers to California Aid-in-Dying measure]

Peter Lee, executive director of Covered California, underscored that the estimate was preliminary but said some one-time factors under the Affordable Care Act mean "2017 will be an adjustment year" for rates.

"We shouldn't put too much focus on this 8 percent number when we will know the reality in two months," Lee  told California Healthline on Tuesday. "There are a number of reasons 2017 will have higher rate increases than the last few years. But we believe in California we won't see the significant headwinds many other states are experiencing."

Lee said the expiration this year of two federal programs that have helped health insurers offset expensive medical claims and cover sick patients in general will affect premium rates across the country. In addition, he cited ever-increasing medical costs, particularly for expensive specialty drugs.

The nation's largest health insurer, UnitedHealth Group, already has said it will exit all but a handful of state exchanges after suffering substantial losses on individual policies.

Lee declined to comment on whether UnitedHealth has submitted a bid to continue selling in Covered California next year.

[Also: Pregnant Covered California clients transferred to Medi-Cal without their consent]

Health-policy experts said the California rate projection mirrors an upward trend around the country as health insurers reassess their pricing and strategy under Obamacare.

"None of us should be surprised to see average rate increases that are slightly higher than last year," said Sabrina Corlette, a research professor at Georgetown University's Center on Health Insurance Reforms. "It's still really difficult to discern where we will end up."

Robert Laszewski, a health care consultant in Alexandria, Virginia, and a frequent critic of Covered California, said Californians will be fortunate if the 8 percent projection holds up.

"That is not a troubling rate increase," he said. "California is coming back toward the average. A bunch of states would die for just an 8 percent increase in 2017."

A bigger concern, Laszewski said, is the tepid growth in Covered California's enrollment and what that may mean for future premiums.

As part of its proposed budget for the next fiscal year, starting July 1, the state exchange expects its annual enrollment to grow by only 2 percent over the next year to 1.34 million. Covered California counts about 1.4 million as currently enrolled but that figure is expected to drop to 1.32 million as of June 30 through normal attrition as people get insurance elsewhere or drop coverage.

[Also: California looks to sell coverage to undocumented immigrants]

Sign-ups are crucial for keeping a diverse mix of enrollees and spreading the insurance costs across a pool of healthy and sick policyholders.

About 3 million Californians remain uninsured, but fewer than 1.4 million of them are eligible for premium subsidies under the Affordable Care Act, according to the exchange's proposed budget.

Lee said California already boasts one of the healthiest risk pools in the country, which insurers have cited as a main reason for the lower-than-average rate increases the past two years. He said the exchange signs up hundreds of thousands of new enrollees each year, but that's offset by high turnover as many people leave the marketplace for job-based coverage, Medicare or Medicaid.

The average tenure of a Covered California enrollee is about 25 months, according to exchange data.

Over time, Covered California expects the gradual increases in the state's minimum wage to $15 an hour could shift more low-income people from Medi-Cal, the state's Medicaid program, to subsidized exchange policies as their pay increases. By 2020, the exchange expects to reach enrollment of 1.52 million.

"California grew very rapidly in the first few years and now we have reached a cruising altitude after three years. We are projecting modest net growth," Lee said. "I think any questions about the sustainability [of exchanges] are just pure hot air."

Covered California's five-member board will discuss the proposed $308 million budget at a meeting Thursday and vote on it next month.

The proposed budget for 2017 is 8 percent lower than the current year budget, reflecting the slower enrollment growth and the fact that Covered California must operate next year without federal startup funds for the first time.

The exchange is planning to draw on $58 million in reserves for operations, and it wants to raise its surcharge on customer policies to 4 percent of premiums, up from 3.4 percent now, or $13.95 per member per month.

Covered California doesn't receive money from the state's general fund and relies on policyholder assessments to pay for marketing, service center operations and other expenses.

Health insurers have urged the exchange not to pass on any unnecessary costs to consumers.

Like Healthcare Finance on Facebook

"Price is the number one factor impacting consumers when they enroll, so we must always keep an eye toward affordability," said Charles Bacchi, chief executive of the California Association of Health Plans. "We urge Covered California to move cautiously before increasing this fee and look for cost savings."

The exchange is proposing to spend $2 million to establish an ombudsman program to help resolve customer service problems.

Consumer groups have criticized Covered California for failing to fix long-standing enrollment and tax-related errors that have blocked people from getting coverage and left some with unforeseen bills.

Last month, federal lawmakers called on Covered California to resolve a problem that has caused some pregnant women to be dropped from their health plans and enrolled in Medi-Cal without notice or consent.

"Absolutely, some consumers have had problems with customer service," Lee said. "We are making significant investments to do better."

This story was produced by Kaiser Health News, which publishes California Healthline, a service of the California Health Care Foundation.

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.

Twitter: @HC_Finance