Three Reasons Your Health Insurance Premiums Are Increasing
In October, the Obama administration acknowledged that health care premiums for plans created under Affordable Care Act would rise substantially in 2017. To better understand the reasons behind these increases, consider the following.
Increased Costs for Insurers
According to the U.S. Department of Health and Human Services, insurers will raise the cost of plans sold through HealthCare.gov by an average of 22 percent next year. This increase will be triple the increase from 2015 to 2016, when premiums jumped by only 7.5 percent.
The reasons behind the increases center on the nature of the program. The Affordable Care Act mandates that insurers may not deny insurance to people with existing conditions. While this allows anyone to acquire a health plan, it also infuses the pool of insurance customers with numerous patients that have chronic medical conditions. As these people access tests, treatments and medications, insurers must pay out more claims. To offset these losses, insurers spread the costs to other policyholders.
This inevitability was no surprise to the Obama administration, which has employed programs to help redistribute insurance risk. Unfortunately, a number of other unexpected factors have popped up, leading to a marked increase in insurance premiums. These include:
- Overoptimistic Predictions: At the outset of the Affordable Care Act, most insurance companies lacked information on new customers without previous insurance coverage. According to reports, insurers lost billions on the individual market, because these customers proved sicker than expected. While the federal government has employed programs to help redistribute insurance risk, some companies benefited less than others. Ultimately, there was a wide disparity between predicted and actual costs for insurance companies, leading many to increase premiums to cope with losses.
- Fleeing Insurers: Some insurers are withdrawing from markets in which they currently offer non-profitable plans. Aetna and UnitedHealthcare has each signaled their intentions to leave several markets. This means less competition, which would normally help to reduce premiums. In fact, according to the Kaiser Family Foundation, some states - Wyoming, South Carolina, Oklahoma, Alaska and Alabama - will have only one company offering plans via the marketplace. Without competition, there's no reason for single insurers to offer more affordable plans.
- Health care is Costly: The cost of medical care and pharmaceuticals is high and only increasing. New drugs and medical treatments are especially expensive, and - since more sick people are able to acquire insurance through the Affordable Care Act - they can get costly treatments they couldn't normally afford. These pricey treatments work to drive up premium costs for the entire pool of insurance customers.
What Can be Done?
According to the Obama administration, Affordable Care Act premiums should stabilize once insurers adapt to the new market, which no longer allows them to profit by “finding the healthiest customers.” At the same time, President-elect Donald Trump has vowed to eliminate or, at bare minimum, drastically alter the existing Affordable Care Act. In the meantime, Americans are left to weigh the costs between high premiums, individual mandate penalties for not having coverage, and the high risk of going without any insurance coverage at all.