Why are premiums going up so much this year?

The health care reform law – known as the Affordable Care Act (ACA) – adds many new benefits to health care coverage, but those benefits also bring new costs. Before reform, there were fewer requirements on the benefits that each insurance policy must provide and fewer restrictions on coverage limits. That allowed individual customers and employers to readily choose a plan that fit their needs and their budgets. The major provisions of the ACA that will impact costs are:

  • Coverage is guaranteed. The ACA requires health insurers to accept all individuals and employer groups that apply for coverage regardless of their health status, with a few limited exceptions. While this is largely in place for employer-sponsored plans already, it will have a significant cost impact on individual plans.
  • Pre-existing conditions must also be fully covered. This is good for people facing chronic conditions, but it will add costs and therefore impact premiums for individual customers.
  • The ACA puts limits on deductibles and out-of-pocket expenses. Premiums are based in part on how much the plan and the member will each pay for health care services. So, lower deductibles will mean higher premiums.
  • Age rating restrictions are in place. Older patients tend to need more (and more expensive) health care services than younger patients. Age ratings allow insurers to more accurately spread risk (the likelihood of using health care services) over a range of age groups. A greater range of age ratings can help keep premiums more in line with the cost of care. New restrictions will lower costs for many older members but will raise them significantly for younger, healthier members.
  • Younger, healthier members – who are now facing higher premiums – are likely to opt out of coverage in favor of paying the penalty tax. For some, this tax may be as low as $95 for the entire year – a figure much lower than the cost of purchasing insurance. When healthy members opt out of coverage, those remaining are often older and sicker. Those members drive up the costs for the rest of the population when the healthier members aren’t there to balance the risk.
  • New taxes – In 2014 our company alone will face $200 million in new taxes and reinsurance fees required by the ACA to help fund subsidies and other provisions within the law. This boosts the amount of taxes paid per member to nearly $163, a 69 percent increase.

Posted in: Health Care Costs 101