Many Americans in the individual health insurance market — those who purchase their own health insurance vs. getting it through their employer — are getting their first glimpse into their 2014 premiums.
And many are facing sticker shock!
Why are some people’s prices increasing in the 2014 individual market?
The price increases are a matter of math and statistics.
No More Denial for Pre-Existing Conditions
A cornerstone of the Affordable Care Act (ACA) — otherwise known as “Obamacare” — is that no one can be denied coverage because of pre-existing medical conditions. Understandably, when polled, Americans say they favor this concept.
But mathematically speaking, it will cost more to insure people with pre-existing medical conditions because their health care costs will be higher than those of healthier individuals.
No More Higher Premiums Based on Health Status
The law also prohibits insurance companies from charging higher premiums to those who have pre-existing conditions or are generally less healthy due to high risk conditions like obesity. Carriers also are limited to charging older policyholders only 3 times as much as their younger counterparts, and must charge women and men the same rates.
So even though it will cost more to insure certain individuals, companies cannot fully recoup the extra cost by charging more to do so.
Finally, the new law requires coverage for ten essential health benefits — some of which may not have been included in pre-ACA plans — and caps consumers’ annual out-of-pocket expenses.
That’s the math part — insuring Americans under the rules of the Affordable Care Act will cost the insurance companies more than it did before ACA was law. To a lesser extent, “regular” inflation in the cost of health care also contributes to the rise in premiums.
Now for the statistics.
Setting Premiums for 2014 Plans
When setting premiums for 2014 plans, the insurance companies had to make assumptions about who will sign up for coverage — individuals with known medical issues or healthy people — and how many of each.
Basically the insurance carriers had to take their best guess — with input from actuaries and other professionals — to predict enrollment and how much it will cost to insure those that enroll.
The underlying premise of 2014 premium pricing is that the costs of coverage will be spread over all Americans — young, old; healthy, not-as-healthy; men, women; etc. — based on the enrollment assumptions.
Not All Will See Prices Increase
Premiums will actually go down for some older, less healthy consumers as the higher cost of their health care is spread across more people.
The biggest premium increases will be seen in younger, healthier people.
Likewise, the further a person’s current coverage deviates from meeting all of the requirements of ACA, the more of an increase in premiums will be seen in a new plan.
Depending on income, some consumers will be eligible for a subsidy. Click here to check if you may be eligible.
Pricing Could Require Adjustment in Future Years
As noted above, the 2014 prices were set based on certain best-guess assumptions. When final enrollment figures for 2014 are tallied, showing the actual ratio of sicker to healthy people that enroll, insurance carriers will learn if their 2014 pricing was on the mark or not.
If fewer than expected young, healthy individuals enroll, then the prices are likely to adjust up in the future. If experience shows that the cost to the carriers of insuring their policyholders is actually less than predicted, consumers could receive a rebate from their insurance company (this is a provision in the law!).
This is why the whole country is watching so closely.
Give us a call or send us an email if we can help you understand your 2014 pricing and help you select the coverage that will best meet your goals.
Please be patient as we manage an extremely high volume of calls and emails.