It’s that time of year when stories start to fill the newspapers about an expected health insurance rate increase.
With renewals coming up in a few months, an indication of a large rate increase isn’t welcome news for anyone. But – what does it actually mean to you as an individual, when a company files a 30% increase in health insurance rates in your state?
The answer is quite vague. It could mean you will have a 30% increase in your health insurance premium, but the odds are it doesn’t. How your individual policy will be impacted depends on many, many factors such as your provider network, your plan, and your location.
You won’t know until you get your renewal notice what will happen to your rates. However it now appears, in the summer of 2015, that most people will experience large increases in their health insurance premiums.
Some of the key reasons a large rate increase is probable are:
1.) The makeup of the enrollees in this year’s health insurance plans compared to what had been projected,
2.) The reduced amount of government subsidy for loss payments, and
3.) The sustained increase in health care costs.
Let’s look at each of these to get a deeper understanding of the issues.
The Young Invincibles
The nineteen million young adults who are uninsured have been referred to as the
“young invincibles” because they reject the protection provided by health insurance. They don’t feel they need the check-ups, preventive medicine, and occasional treatment in an emergency room. They’re betting they won’t suffer a chronic illness.
The Affordable Care Act was based on bringing these healthy, young people into the pool to offset the aging population. The older you get, the more costly your health care becomes. In many cases, you will incur huge expense in your final years.
So far, many of the “young invincibles” have rejected the Affordable Care Act. It remains to be seen what will happen when the larger fines become enforceable. Although hard data isn’t available yet for 2014, it seems many plans will fall short of their goals of attracting these younger enrollees. The impact of this will depend in part on whether your state allows non-compliant plans and the extent of your state’s enrollment outreach.
Rates were set based in anticipation of a much larger percentage of young adults coming into the pool and because of that, they appear to have been inadequate.
The federal government has been subsidizing the underwriting loss for health carriers. There were many, many unknowns, such as the percentage of young who would take part.
To attract carriers to provide health plan options and to gain the support of the health insurance companies, the government created a situation where it would be much harder for companies to lose money.
These subsidies had a sundown clause and are now phasing out. In 2014 $10 billion was available. This will drop to $6 billion in 2015.
It is easy to assume that as these funds go away the number of companies willing to continue taking a risk on unknowns that still exist will dwindle. Simple supply and demand suggests that as competition decreases prices will go up.
Increased Health Care Cost
Health care costs are increasing for services provided on a per unit basis. Some had projected a reduction in physician fees of twenty-one percent, while fees actually remained flat. Past rates were set on those incorrect assumptions and changes in rate structure are needed.
At the same time the demand for care is increasing in numbers and intensity. The aging population is blamed for a large part of this increased demand. About 20% of the increase is expected to be due to those newly protected under the Affordable Care Act.
As demand increases there will be projected shortfalls in the number of available caregivers. Again simple supply and demand would suggest increased costs. Some of this might be alleviated through the broader use of nurse practitioners and physician assistants.
Will the Increases Continue
Due to the intense politics surrounding the Affordable Care Act it is extremely hard to get an untainted opinion on future rates. Some reports out of Washington are quite positive.
The Affordable Care Act was implemented to create a national system that would attract a broad spectrum of users to purchase health insurance. It is hard to argue with that logic . . . even harder to understand why our country took such a huge gamble without putting a plan in place that would make participation more attractive.
As the difference between the projected users and the rates charged becomes more distinct, rates will increase.
Further, the amount of waste involved in implementing this plan has been astounding. Although you have to wade through political rhetoric, it’s obvious in my state of Minnesota that over $200 million has been spent on a program that simply does not work.
I’ve spoken before about my wonder at the impaired logic of exchanges.
Without efficient administration or improved risk, it’s hard to see how health insurance premiums will go down in the foreseeable future.
Incredibly, in Minnesota the government decided to implement our exchange without anyone from the healthcare industry in an initial position to provide advice. The results have been catastrophic. Perhaps our government needs to take a look at the Affordable Care Act, with help from people who know and understand the industry.
The amount you’ll pay for your health insurance depends a great deal on your market research, your knowledge of historic loss patterns, and your ability to find a way to purchase the most beneficial program. All of that is made easier with the help of an insurance agent.
The biggest flaw in the Affordable Care Act and the implementation at state levels has been the churlish and childish assumption that insurance agents were part of the problem. Rather, insurance agents have been an integral part of what was good about health insurance over the years. When the government diminished the role of agents they hurt us all, and the results are plain to see in the rate increases.
The Affordable Care Act is based on the main underlying assumption of much broader participation. It is inconceivable that our government was so incredibly stupid as to project increased participation while cutting off its production source, but they did.
The “young invincibles” need the financial security that is provided by insurance. They need to be educated. That is the role of the insurance agent.
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