It’s called the “Affordable Care Act” after all. So why are prices going up?
The quick answer: Nothing is free – especially in the world of American healthcare. But you knew that already, so let’s dig in a little bit.
There are 4 factors that are driving the significant price increases we expect to see in 2014:
1. Increasing medical costs. On the one hand, this is old news. The cost of healthcare in this country has gone up every year for a long time now. The rising costs were the major reason that some people got declined when they tried to buy health insurance, or had pre-existing conditions excluded. Their treatment (or risk of major treatment) was just too expensive. Cruel as that sounds, that was just the cold hard reality.
Now that everyone can get health insurance, and now that pre-existing medical conditions (or other forms of risk) cannot impact anyone’s price, the impact of expensive healthcare will be more significant than ever before. One insurance company executive (from a company we deal with) recently said these changes to medical underwriting alone would result in a 25-30% increase in prices.
2. Essential health benefits. The Affordable Care Act mandates a certain set of benefits be included in every health insurance plan across the board. Some of those things were already covered, but some are new benefits. And, as you might expect, they’re not free. The same executive believes these changes will result in a 5-7% increase in health insurance premiums.
3. Shrinking age banding. That’s insurance-ese for the idea that age cannot be as significant in determining price as it used to be. Someone age 64 can pay no more than triple (3 times) what someone age 19 pays for the same health insurance plan. Formerly that spread was much higher – maybe ten times. Our insurance exec suggests this will cause overall premiums to go up around 5%.
Along similar lines, there can be no difference in price between males and females. Formerly female paid more because they more heavily utilize healthcare, have more routine/preventive care, and because of maternity issues.
4. New taxes and fees. One of the ways the Affordable Care Act seeks to fund itself is through new taxes, surcharges, and fees levied on health insurance policies and on the companies themselves. These result in around a 2-3% increase in premiums.
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The Result. If you do your math, you’ll begin to see that prices are going to up significantly. The insurance company executive we cited said that the average premium will go up somewhere in the 40% range. This, of course, is subject to some variability. Younger people, for example, will see their costs go up more because of the “age banding” issue discussed in #3 above.
In fairness, many people will be eligible to receive subsidies from the federal government to help pay their premiums. Those will be available at some level to anyone making less than 400% of the federal poverty limit – a number that will include a lot of people. Obviously the greater your income, the less your subsidy. We can discuss this issue with you in greater detail if you contact us.
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What Can You Do? If the increasing prices are a concern, and you’re relatively healthy, you should act now to lock in 2013 prices. Many insurance companies are still writing policies under 2013 rules and with 2013 pricing, which will allow you to put off the higher premiums for up to a year.
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Got questions? Want to talk about your particular needs and situation? We’d love to hear from you.