Question 2 – Why did my premiums go up?
The Patient Protection Affordable Care Act (commonly referred to as Obamacare) did a lot to reform healthcare. The biggest way in which the health insurance industry was impacted was on pricing – how premiums were to be calculated and how much money the insurer had to spend on claims.
Refresher course – the premium is the amount you pay each month to the health insurance company for your policy. The claims are your medical expenses which get submitted to the health insurer and paid according to your schedule of benefits. The Schedule of Benefits is the way the policy pays for things; i.e., your deductible, coinsurance, and copays.
The ACA affected premiums in many ways:
1. No more gender-specific rating. Which means males and females pay the same rates.
2. Age bands were reduced from 5 to 3. This means rates for a senior can be no more than 3x the rate for a child, whereas they were previously allowed to be 5x the rates of a child. Age does still factor into your premium, but not in the same way it did before.
3. No more medical underwriting. This means no more declines based on health history or health conditions, no waivers on pre-existing conditions, and no special treatment for individuals in good health. So it doesn’t matter if you’re in great shape or horrible shape, you’re going to pay the same rate for your health plan. I.e., a 40 year old woman with no health conditions and a 40 year old man with diabetes and heart disease in the same area would pay the same rate if they chose the same plan, regardless of how much they each cost the company in claims.
4. Medical Loss Ratio – this was implemented in January 2011. It meant that 80% of each premium dollar had to be spent on claims, or the company would have to refund the difference. As a health insurance agent I have seen many refunds be issued. However, many companies end up spending over 80% on claims.
5. Standardizing health insurance plans- by implementing the 10 essential health benefits and standardizing health insurance plans by metallic tiers, plans include certain mandatory benefits that were not previously required. The biggest one seems to be maternity coverage – maternity coverage is now mandatory and automatically included, regardless of age or gender. So it doesn’t matter if your 6 or 60, male, or have had a hysterectomy or tubal ligation; you’re paying for maternity coverage.
6. Area – This one isn’t as big of an impact, but the ways in which health insurance companies could determine rates based on the area in which you reside were reduced.
7. Tobacco use – As tobacco use is not considered a pre-existing condition, insurance companies may still increase rates up to 50% for use of 4 or more units of tobacco per week within the previous 6 months.
8. Preventive Care – Although most companies already covered preventive care 100% prior to deductible, it is now mandatory. This includes birth control (if your employer excludes birth control it is still paid 100% by the health insurance company, the employer is just not charged for it in their premiums).
9. Taxes and fees – PCORI, Reinsurance, Risk Adjustment, Public Exchange, and Market Share fees are all federally mandated and included in your premium as of January 2014, even if you’re not on an exchange plan.
Remember, this is the Affordable Care Act, not the Affordable Premium Act. But they had a work around for that – Tax Credits. For people with incomes below 400% of the Federal Poverty Line, they worked up a system to determine how much was considered “affordable” based on income.
How much you’re expected to be able to pay for your health insurance premiums based on income:
138% of FPL and below: State Medicaid (based on your state and whether or not they chose to expand Medicaid)
We will discuss the tax credits/premium subsidies more in another post. The general idea was to assist those in need with the cost of the new health plans. They do this by figuring out your income and family size, determining which tier you fall into, and what your premiums would be based on the second least expensive Silver level plan in your area. If the premium for that plan would exceed your anticipated contribution, you’d get a tax credit for the difference that could be paid directly to the insurance company to subsidize your premium down to a level that would be deemed affordable.
But, for those who do not qualify for a tax credit or who choose to buy off the exchange, full price health insurance can be a lot more expensive than it was before. The ACA assists those with low income, poor health, or other qualifying circumstances by giving access to guaranteed issue high quality healthcare at a premium that was deemed affordable. The other side to that coin is that having no restrictions or repercussions for poor health also means no rewards or incentives for good health.
So, in a nutshell, that’s why premiums are jumping so high this year for many. Some are actually seeing a rate reduction. Some are also qualifying for assistance or Medicaid. Here at Phoenix Insurance Consultants we’re always happy to help you find the best rate for you and help you apply for any assistance that may be available. www.bchealthsolutions.com 800-433-0553