Will premiums increase this year more than in previous years?
Historically premiums have tracked the underlying cost of care, and in 2015 that will not be any different. In addition to underlying costs, premiums are also impacted by several other factors related to the health care reform law. These factors include continued expansion of coverage to new populations, increases in taxes and fees, and broader benefit requirements. For some individuals, these changes mean they will be paying more for coverage than they did previously. In addition, a number of state-specific factors, including additional benefit mandates, also cause premiums to vary across different states. Learn More.
Will premiums continue to go up each year?
Many people experienced increases due to the changes under the health care reform law now in effect. Expanding coverage to 26 million uninsured Americans, requiring broader benefits, taxing health insurance, and rising health care costs all impact premiums. The generous financial assistance the law provides can significantly help many working individuals and families afford new coverage, although most people who purchase insurance on their own or have it from a small business will still 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 young and healthy people in it to offset the costs of covering many older and less healthy people who are newly insured.
In addition, since health insurance premiums directly reflect the cost of providing medical care, controlling the growth of medical cost 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.
While these changes require many individuals to purchase coverage that is more comprehensive, and therefore more expensive, than what they chose in the past, some consumers will be able to keep coverage that does not meet the requirements of the health reform law for up to three years. This varies across the country based on state-by-state decisions. According to the American Academy of Actuaries, “if lower-cost individuals retain their prior coverage, and higher-cost people move to new coverage, the medical spending for those purchasing new coverage could be higher than expected.” Learn More
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. Learn more about how insurance companies are working to make health care more affordable.
How are premiums set?
Experts (called actuaries) estimate what the insured population will spend on medical care in the coming year and set premiums to cover those expenses. 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 increases there is a corresponding increase in premiums.
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 greatly expands access to broader health care benefits and adds taxes and fees—all of which bring significant costs to the health insurance system and impact premiums. Generous financial assistance provided by the law helps make premiums more affordable for many working families. However, not everyone will qualify for assistance, and for those who do, many will still end up paying more for coverage than they chose to in the past.
The health reform law also includes provisions that are intended to help stabilize the health insurance marketplace and protect consumers as the new rules are implemented. These premium stabilization programs include a “transitional reinsurance” program, which provides funds to help offset the impact of high-cost enrollees. According to the non-partisan, non-profit Kaiser Family Foundation, these programs “are intended to protect against the negative effects of adverse selection and risk selection, and also work to stabilize premiums, particularly during the initial years of ACA implementation.”
Health insurers are leading the way in helping individuals lead healthy lives and are working to keep costs down by rewarding doctors and hospitals for providing quality care. They are also helping patients manage chronic conditions and encouraging everyone to make healthier choices to prevent disease. Learn more.
Why are premiums going up so much, especially when health care cost increases are slowing?
U.S. health care spending has 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 has greatly expanded access to insurance, broadened benefits and added taxes and fees—all of which bring significant new costs to the health insurance system.
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.
Each year health insurance premiums are also subject to a robust review process by state insurance regulators. This consumer protection process ensures that rates are set based on evidence and established actuarial standards.
Do 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 old individual insurance market functioned much differently. In an environment where some people choose not to purchase coverage, applicants were incentivized to purchase coverage before they needed it, and to maintain coverage over time. This helped keep coverage as affordable as possible for all policyholders.
In the new health care environment, all Americans are now able to purchase health insurance in open enrollment periods with no exclusions for pre-existing medical conditions and even if they are ill or injured. Premiums are no longer based on someone’s health status. Learn More.
Why do the changes to insurance impact small businesses so much more than big businesses? This question is also listed under Requiring Broader Benefits and has a longer, more in-depth answer there.
Changes to health insurance coverage in the new health reform environment 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.
Who is paying the new health insurance tax?
The new health insurance tax is effectively a sales tax included in the health reform law that will be paid by health insurance companies on the policies they sell to consumers, small and midsize employers, Medicare Advantage beneficiaries and state Medicaid managed care companies.
Non-partisan experts agree that this new tax will raise the cost of health insurance. The Congressional Budget Office (CBO) has said that it will be “largely passed through to consumers in the form of higher premiums.” According to actuarial firm Oliver Wyman, “for each dollar paid in taxes, an additional $1.54 in premium must be collected.” In 2015, the health insurance tax increases by 41 percent. According to a report by Oliver Wyman, this means that an individual purchasing coverage on his or her own for 2015 will pay $170 in higher premiums and small businesses will pay an additional $530 for each family they cover. Congress’ bipartisan Joint Committee on Taxation estimates that the tax will add an additional $350-$400 a year to family premiums3 in 2016. Learn More
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 areneeded 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.