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Why is my health insurance going up so much?

A brief overview...
  • Private insurance companies set Health insurance rates
  • Insurers base rates on the expected levels of services for their members
  • Insurers contract with medical care providers who set their rates and terms
  • The CMS reviews the rates but does not actively participate

A common observation among individual and group plan members is that prices are going up. Memory provides evidence that the current increases are smaller than before the Affordable Care Act, but this is of little comfort to those who feel trapped by today’s prices. There does not seem to be a single answer, but insurers report rising costs and higher levels of usage of services than expected. Comparison shopping is an important tool when seeking the best price and value in health insurance.

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The Individual Mandate

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The individual mandate requires that every eligible person buy qualified health insurance. The insurance must be affordable within the definition in the Affordable Care Act and the rules that carry it out.

This requirement limits Marketplace policies to eight percent of annual income. It limits employer-sponsored plans to nine and one-half percent of annual income.

Universal Acceptance

The key provisions of the Affordable Care Act require every eligible person to have health coverage. The law requires that insurers accept every eligible applicant. This situation has the elements for higher prices during the initial phases of the law. The individual mandate applies to the sick and elderly as well as the young and healthy individuals.

Prevention and Wellness

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The Affordable Care Act emphasizes prevention. It offers no-cost services to every policyholder to promote early detection of conditions that could lead to more severe disease. These programs will reduce costs of medical care over a long term. In the short term, they may add to costs as Insurers must provide these services at no additional costs to the member. The below-listed items include the free services in the Affordable Care Act.

  • Immunizations
  • Screenings and tests
  • Physical exams
  • Lab work

Tobacco Cessation

Tobacco usage is one of the few categories that insurers can use to raise an individual’s insurance rates. Tobacco usage and age are exceptions to class pricing.

Tobacco usage adds to the national healthcare burden. It is a habit that creates severe health risks including diseases that require extensive lifetime care.

Tobacco usage causes rates to rise both for the individual tobacco user and across the entire system. The below-listed items describe the permissible reasons to charge more for a plan.

  • Location
  • Age
  • Tobacco usage

Medical Inflation Factors

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Hospital costs, salaries, medical equipment, and improvements in care drive prices higher at the source. Insurers contract with medical services providers. The providers have inflation and price drivers that affect their ability to offer low prices.

Further, the providers push down prices to work in a network with insurers in one business cycle. They must often rebound by restoring the temporary cuts. It is difficult to offer under-market prices on a long-term basis.

Competition is too Low

The primary incentive for lower prices comes from price competition. In most areas, it is poor or non-existent. Particularly in rural areas, a dearth of competition is a formula for rising prices. Most areas have a dominant supplier and little competition from comparable sources. Without a meaningful race to attract customers, private firms have little incentive to work to lower prices. They may instead work to increase profits.

Consumer-owned Opportunity

The Affordable Care Act design called for COOPs. These organizations were planned to enter markets and bring low prices. Consumer-owned organizations could counterbalance the for-profit private insurers. The Congress cut the funding for these programs after many had begun, and thus removed a viable source of needed competition.

Higher Demand for Services

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Insurers base their prices on the estimated future demand for services. They contract with medical care providers in numbers to ensure enough resources to cover the expected demand from members.

When the demand exceeds their expectations, they incur higher costs. The following cycle to account for the higher level of demand, and this causes price increases. The CMS requires that networks that have not been built-out completely agree to pay market prices to get sufficient numbers of providers.

Insurance Profits

Insurance companies are for-profit organizations, and many non-profits have extensive expansion plans which require further funding. Many critics cite the enormous salaries of top insurance executives that average well above $10 million per year. True, the insurance companies wish to return a profit for their investors, and they manage their products with that view. Many have reduced the size of networks to achieve efficiency; some have reduced support for customers that use outside resources. The ACA provides risk protection to help keep prices low.

Warehouse Versus Active Purchaser

States are in a uniquely powerful position to influence health insurance rates. A few such as California and New York, have made remarkable progress when working with insurers. They follow the active purchaser model. The federal CMS reviews health plans for their Obamacare Marketplace. Thus far, they have used the warehouse model and approve those plans that meet the requirements of the rules. There may be a change in the near future.

Why is health insurance going up?

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There is no single reason for rising prices but a combination of market factors, management choices, and consumer demand. The private insurance system used prices to reduce demand before the Affordable Care Act. They could cherry-pick the healthy clients, reject those most likely to need services and maintain high profits and low costs.

By requiring everyone to be insured and accepted, the system has a bias towards higher prices. The Affordable Care Act design was broken by the Congress when they cut off the consumer-owned entities that promised low prices and to fill the lack of competition.

Employer Plans and Groups

The trend towards price increases includes those with employer coverage and other group policies. While prices may rise more slowly in the group sector, they do rise and often come with smaller services menus. Since people with offers of employer coverage cannot get financial support on the Obamacare Marketplace, the group members have few alternatives.

Networks Matter

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Many HMO plans have reduced the size of their networks. The narrow network is a trend in health insurance as insurers try to get leaner. This is an attempt to get maximum traffic flow into fewer service locations. The critics of this practice point out that it may mean less convenience for the customer. For example, wait time for non-emergency appointments may be longer in narrow networks. Customers may have to purchase additional services because the pared-down network offers fewer choices than in the past.

Shop for Lower Prices

Informed shopping is a tool for lower prices. These are shoppers that pay attention to the costs, and demand information from the providers. This helps create a business environment in which price is more important than if they were silent or not aggressively seeking bargains. Comparison shopping is one of the consumer’s defenses against rising health insurance costs.

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