Why are premiums going up faster than expected? The simple and accurate answer is … insured people are using health care services at a high rate. There are other factors too, but they also relate to health care spending. Note in the charts below that the inflation in health care prices is not that far out of line with the CPI.
Sixty percent of the rate increase individual policyholders will see in 2018 is a direct result of decisions made in Washington, DC. Depending on which plan you choose, individual policy premiums will increase between 16% and 28%. The average increase across all individual plans is 24.3%, but three changes made by the Federal Government account for 14.7% of that average increase.
Washington’s Role in the 2018 Increase: 3 Cost Drivers
Lax Enforcement of the Individual Mandate
The ACA created an individual mandate that requires everyone to have health insurance. When everyone buys health insurance, the cost of care is spread out evenly among a larger group and that lowers the cost. When fewer people buy health insurance, the costs of care are spread among fewer people and the cost per person goes up. While the individual mandate is still the law, Washington has made it clear that they aren’t going to enforce the mandate. That means fewer people will buy health insurance which increases rates for those who do by 8.5%.
2. An End to Federal Funding of Cost Sharing Reductions (CSRs)
The ACA also required insurance policies that offer subsidies that help cover deductibles, copayments, coinsurance and other out-of-pocket costs for eligible lower-income customers. In 2017, more than half of all individual purchasers in New Jersey received these CSR subsidies. Washington is no longer funding CSRs, which means that the cost of providing the subsidies will shift to policyholders. That cost increases the total average premium by 3.9%.
3. Reinstatement of Federal Health Insurance Tax
Since 2014, health insurers have had to pay a new tax as part of the ACA. Two years ago, Congress enacted a one-time tax “holiday” to help keep premiums down and the tax wasn’t paid in 2016. The tax holiday has now ended and the tax will again be part of the premium cost increasing the average price by 2.3%.
Federal policy changes account for a 14.7% increase in the 2018 average individual premium.
Increased Claims, Rising Medical and Drug Costs, New State Mandates, and Out-of-Network Costs
Medical costs account for most of the premiums people pay. By law, health plans must spend at least 80 cents out of every $1 in premiums on medical costs. When costs increase, the price of health insurance also goes up:
Doctors, drug companies and hospitals raise prices and a national, independent research organization said that, nationally, those costs are expected to rise by 6.5%.
When people go to the doctor, have tests or fill prescription more often because they have more health needs than their health insurer planned for, this higher spending leads to higher premiums.
When the law requires health insurance to cover certain, specific procedures, tests or treatments those costs are passed along to all policy holders. When out-of-network providers submit surprise medical bills or inflated charges, all policyholders pay for that through higher premiums.
These higher costs account for the remaining 9.6% of the average total premium increase for 2018.
Source: Horizon Blue Cross Blue Shield Blog October 2017