Why did my 2017 premium increase, and what should I do?
A month into the Open Enrollment Period, members are experiencing sticker shock as they receive letters from their current health insurers alerting them of premium increases for 2017. In fact, the average premium increase for benchmark Silver plans in the US is 7-10%; which, for a family of 4 could amount to an extra $1,000 per year for the exact same plan. In some states premiums are increasing 32-38%! Not good.
What is my premium, anyway?
Your premium is the monthly amount you pay to your health plan to be insured, regardless of whether you use your plan or not. Premium prices vary among metal tiers – generally, the more you pay for your plan each month, the more care it will cover when you seek medical services.
Since the Affordable Care Act became law, health insurers cannot charge you more based on your health status or medical history. Premiums are set based on the projected medical costs of the insured group as a whole (everyone buying the same plan as you), known as risk pooling. This allows insurance companies to spread high health costs over a large number of people.
Why is my premium increasing this year?
Because the majority of premium payments go towards paying medical claims, the major factors that can increase premiums are the insurers’ costs from the previous year, the composition of the risk pool, enrollment growth, and enrollment competition between insurance plans. [We must note: this is meaty, complex stuff. The limited information below is designed to give you a broad understanding of what’s going on.]
1. Costs in 2016 were higher than expected
Insurance companies price plans for 2017 based on what they experienced in 2016. Many companies faced higher costs than expected and some even experienced losses. That, combined with expected increases in projected medical costs are reasons for increased premiums for 2016.
2. Composition of the risk pool is unclear
The premium rates for 2016 represent the first year where insurers were able to set premiums based on actual claims data from ACA enrollees. The problem: insurers were only working with partial data from 2014, because many enrollees did not buy coverage until mid-year.
Additionally, the demand for healthcare services was not necessarily representative in 2014. There was likely pent-up demand for services among people who were previously uninsured. The first people to take advantage of the ACA were likely those with pre-existing conditions, meaning as the pool of insured people increased, so did the risk of the pool.
When a risk pool attracts people with proportionately worse health status, that plan will have to increase its premiums to cover the costs.
3. Cost-sharing programs between insurers are phasing out
The government projected an increased risk pool for the first few years of the ACA, so they included three programs (2 of these temporary) to mitigate this risk and hopefully decrease premium increases.
Two of these programs, the ACA reinsurance program and the risk corridors program, are being phased out in 2016. The phasing out of the reinsurance program in particular could also be contributing to increased premiums for this year. This program pools contributions from all health plans and redistributes to those with higher risk enrollees, allowing plans to offer lower premiums than they otherwise could. This reinsurance program is in its last year and totals $4 billion in 2016 (down from 10 billion for 2014).
What should you do about premium increases?
You must shop around and switch plans to avoid these premium increases in 2017. In an analysis from the Kaiser Family Foundation, a hypothetical 40-year-old had an average premium of $264 for the lowest cost silver plan in 2016. If she stays in the same plan for 2017, her premium will increase by $28/month, or $336 for the year (before subsidies). If she is willing to switch her insurance for 2017, the lowest cost silver plan offered is only $1 more at $265/month.
The health marketplace is competitive: people who had the cheapest plan last year are seeing a big increase, while some of the higher priced plans from last year are the least expensive in 2017.
Bottom line: You have to do your homework to find savings, and we are standing by make that as simple as possible. Take our health care recommendation engine for a spin today!