How much will premiums be going up?
It depends. There is no simple answer to this question. The health reform law will impact people’s premiums very differently depending on a number of factors: their current coverage, health status, age, gender, income, and where they live. Federal subsidies will offset the costs for some people, but many will be eligible for only a partial subsidy. Learn more here.
Will premiums continue to go up each year?
Many people will experience increases due to the changes under the health care reform law that go into effect this year—expanding coverage to 27 million uninsured Americans, covering pre-existing conditions, requiring broader benefits, limiting premium differences, and taxing health insurance. The generous financial assistance the law provides will significantly help working individuals and families afford new coverage, although most people who currently purchase insurance on their own or have it from a small business are still likely to see premium increases.
It is hard to say whether premiums will increase in the short term and then level off in the future or if they will continue to rise. That answer will depend in part on whether—over time—the health insurance “pool” has enough younger and healthier people in it to offset the new costs of covering many older and less healthy people.
If health reform succeeds in attracting younger and healthier people into the health insurance market, the premiums would likely stabilize once all of the reforms fully take effect. On the other hand, if younger and healthier people largely choose to pay a penalty rather than get health insurance, there is a possibility the health insurance “pool” could be unstable and significant premium increases could continue into the future.
In addition, since health insurance premiums directly reflect the cost of providing medical care, controlling medical cost increases is ultimately the only long-term solution to rising premiums. This is a complicated issue requiring reforms, collaboration and cooperation among everyone in the health care system.
Health insurance companies talk to consumers and patients every day. They understand that high health care costs place a heavy burden on American families and businesses. To learn more about how insurance companies are working to make health care more affordable, please click here.
How are premiums set?
Health insurance premiums are a direct reflection of the underlying costs of paying for medical benefits. When the costs or use of medical services such as doctor visits, hospital stays, prescription drugs, and medical devices increase, these costs drive a corresponding increase in premiums. Experts (called actuaries) estimate what the insured population will spend on medical care in the coming year and set premiums to cover those expenses.
Federal government data show that over the past 20 years, health benefit costs – or the amount that the nation spends on things like medical procedures, treatments and doctors’ visits, etc. – have increased by an average of 7.2 percent annually. During that time period, premium increases have averaged 7.1 percent annually. These data demonstrate that health care costs and premiums go hand-in-hand. Additional factors that impact premiums are the cost of selling the policy, the cost of administering the policy, and the cost of capital required to ensure adequate funds so that patients’ medical claims can be paid.
In addition, the health care reform law will greatly expand access to insurance, guarantee coverage for pre-existing medical conditions, broaden insurance benefits, and tax the sale of health insurance policies—all of which bring significant new costs to the health insurance system and will impact premiums. Generous financial assistance provided by the law will help make premiums more affordable for many working families.
Insurance companies are working to keep costs down by rewarding doctors and hospitals for providing quality care, helping patients manage chronic conditions and encouraging everyone to make healthier choices to prevent disease.
Why are premiums going up so much, especially when health care cost increases are slowing?
U.S. health care spending had generally grown far faster than inflation since the federal government began tracking the data in 1960. In recent years, health care costs are increasing at slower rates than they have in the past.
According to a January 2013 study by the Kaiser Family Foundation and the Altarum Institute’s Center for Sustainable Health Spending, “the decline in health spending growth in recent years was fully expected given what was happening more broadly in the economy.”
At the same, the health care reform law will greatly expand access to insurance, broaden insurance benefits and guarantee coverage for pre-existing medical conditions—all of which bring significant new costs to the health insurance system.
If premiums go up, how do I know health insurance companies aren’t just overcharging and blaming it on the reform law?
Under the reform law, health insurance companies must spend at least 80 percent of consumers’ premiums (85 percent for large employer coverage) on medical care and making improvements to the quality of health care. If these thresholds are not met, health insurance companies must pay back money that was over-collected in the form of rebates to consumers.
Why don’t health insurance companies cover pre-existing conditions now?
Health insurance companies have long provided coverage for even the costliest pre-existing medical conditions. Over 90 percent of health insurance in the U.S. has traditionally been provided by employers or public-private partnership—“group” settings in which everyone who applies receives coverage without exclusions for pre-existing conditions.
The current individual insurance market functions much differently. In an environment where some people choose not to purchase coverage, applicants are incentivized to purchase coverage before they need it, and to maintain coverage over time. This helps keep coverage as affordable as possible for all policyholders.
Under health reform, all Americans will be able to purchase health insurance with no exclusions for pre-existing medical conditions in open enrollment periods even after they are ill or injured. In addition, premiums will no longer be based on someone’s health status.
Why do the changes to insurance impact small businesses so much more than big businesses?
Changes to health insurance coverage under the health reform law will have the greatest impact on the individual and small group markets. Many large employers already provide many of the benefits required by the law and those that “self-fund” their health insurance are not subject to many of the new rules and taxes.
Generally speaking, small businesses offer health insurance benefits that are less comprehensive than those provided by large employers. Under the reform law, the minimum level of benefits that must be offered as well as changes in how premiums are set will affect small businesses to a much greater degree than large businesses. Many small employers will need to “buy up” to purchase benefits packages that meet the new minimum coverage requirements.
In addition, the new health insurance tax will increase costs for fully insured plans—the plans that 88 percent of small business owners currently purchase. According to an analysis by the actuarial firm Oliver Wyman, this tax will mean that next year an individual purchasing coverage on his or her own will pay $110 in higher premiums and small businesses will pay an additional $360 for each family they cover.
Who will be most affected by these premium increases?
It depends. There is no simple answer to this question. The health reform law will impact people’s premiums very differently depending on a number of factors: their current coverage, health status, age, gender, income, and where they live. Federal subsidies will offset the costs for some people, but many will be eligible for only a partial subsidy.
People who work for large employers are unlikely to see significant changes in their premiums. People who purchase coverage on their own or receive it from a small business may see big changes to their premiums.
Generally speaking, many younger and healthier people who purchase coverage on their own will likely see large premium increases. On the other hand, older and less healthy individuals who purchase coverage on their own will experience smaller increases, and some may see premium decreases.
Many individuals will receive financial assistance in the form of advance tax credits to help pay for their premiums. While the tax credits will help millions of working families afford coverage for the first time, the non-partisan Congressional Budget Office estimates that more than 40 percent of people who currently purchase insurance on their own will not be eligible for them. For many who do qualify, the tax credits will not fully offset the increase in the cost of their current premiums. One analysis found that even after receiving the tax credits, individuals making $25,000 or more “can expect to see higher premiums.”
Many small employers will also see premium increases in large part because the reform law requires them to purchase a broader benefits package and changes the way their premiums are calculated. Some small businesses will be eligible for a tax credit to help them pay for coverage.
Why don’t insurance companies use their profits or reserves to lower premiums?
Adequate health insurance reserves are a critical safety net for patients. They provide security against the unknown, and ensure that a health insurance company can pay patients’ claims, in good times and bad. State insurance regulators require health insurers to hold reserves for this purpose.
As the new health care law is implemented, there may be unforeseen implications for the insurance market. For example, the cost of the newly insured coming into the market is expected to increase medical claims. Sufficient reserve levels will be needed to make sure that insurance companies can pay the claims of their new customers, and all of their current customers. Adequate and stable reserves are needed to ensure that all claims are paid during this period of significant change.
In addition, the track record shows that health insurance is an efficient, low-margin industry with profit margins that are consistently among the lowest of the industries within the Fortune 500. In fact, health insurance profits account for less than one percent of total U.S. health care spending.
What are insurance companies doing to make premiums more affordable?
Insurance companies are working to keep costs down by rewarding medical professionals for providing quality care, better managing the care of patients with chronic conditions and encouraging everyone to make healthier choices to prevent disease. Learn more here.