Why are premums increasing again? I get that question asked a lot. People want to know why their premiums continue to rise year after year. There are a lot of factors you can point towards. The cost of providing healthcare, medical trend and demographic changes are the obvious. These factors have influenced yearly premium increases for as long as health insurance has been around.
Not only are today’s rate hikes influenced by the obvious factors, but premiums also face a barrage of unrelenting dynamics that will ensure yearly increases for some time to come. So what are these new dynamics? For starters, all policies nowadays are guaranteed issue. To the lay person, and even those in the know, this is a wonderful thing. No one can be denied coverage. However, THIS is a huge reason why most insurance carriers are expecting 14% – 17% rate increases for 2015.
Think for a minute what guaranteed issue really means. Not a single person, even someone recently diagnosed with cancer, can be denied coverage. What we saw in early 2014 was a flood of previously uninsurable individuals into the marketplace. Insurance carriers saw a spike in business, but the new customer base ate up a lot of resources (i.e. they required a lot of medical attention). The amount of sick claims went through the roof. Ultimately margins shrunk and in order to recoup some of that missing revenue, insurance carriers are raising their rates.
Today’s plans also have no annual or lifetime limits. Insurance carriers can no longer deny claims once a certain amount of money has been paid out. In the past, lifetime limits would be capped at anywhere from $1 million to $5 million. As mandated by the Affordable Care Act, Qualified Health Plans must also contain a set of 10 Essential Health Benefits. Mental health coverage and maternity coverage are two benefits that were not included with individual major medical insurance before 2014. Plans must also include preventive services free of charge. This includes things like colonoscopies, mammograms, yearly exams, immunizations and other services for adults and children.
So not only are insurance companies required to accept every applicant, but they’re also required to provide them with additional services that were previously not covered. The only “protection” put into place to prevent the entire health insurance industry from crumbling into pieces is the introduction of the open enrollment window. Unless you experience a Qualifying Life Event (e.g. marriage, divorce, birth, moving, change in income, loss of coverage, etc.) you’re only allowed to sign up for coverage from November 15th 2014 through February 15th 2015. This prevents people from waiting to sign up for coverage until they experience an accident or illness.
The goal of the Affordable Care Act is to increase access to affordable health insurance and to increase the population of insured Americans. Unless you qualify for tax credits or have more money than God, the reality of the situation is that health insurance is more expensive than ever. The government hit the nail on the head with the access part, but should consider changing the name of the law to the Unaffordable Care Act.
Eventually, as more and more people get coverage, prices should come down. With an emphasis on free preventive care, covered individuals will be more likely to go in for yearly exams and wellness visits. Early prevention is key to reducing diseases and the toll they take on insurance company’s bottom lines.
However, for now, and in the immediate future, we should expect to see yearly increases until the ultimate goal of the Affordable Care Act is achieved.