Why Health Insurance Rates are on the Rise and 10 Ways You Can Save
Whether you get your health insurance through the Affordable Care Act (ACA) or from an employer, expect to pay more for your coverage in 2017.
Experts predict health insurance rates to increase next year, with insurance companies proposing increased rates of 10 percent or more for Obamacare plans. In states like Illinois, insurers are asking for as much as 45 percent. Likewise, in New Jersey, companies are proposing a 32.3 percent surge for ACA plans for individuals.
But are this year’s increases much more than they've been in the past? Yes, in some cases, according to Hector de la Torre, executive director of the Transamerica Center for Health Studies, a non-profit division of Transamerica Institute. He noted that California's expected rates are more than three times the increase seen in the last two years.
Still, before you panic, know that just because an insurance company is asking for an increase, that doesn't guarantee they'll get it. First, the state's department of insurance has to review the rates and approve them. In the end, final premiums may be lower than the requested rates.
De la Torre explains that the ACA set up a process for reviewing "unreasonable" insurance hikes.
"The regulation established a 10 percent national review threshold for proposed premium increases to individual and small group insurance products in the first year, and…the Centers for Medicare and Medicaid Services (CMS) establish state-specific thresholds in subsequent years," says de la Torre.
Any state that doesn't set a threshold will have to abide by the 10 percent national review. Even if your state's premiums are set to skyrocket, your particular area might not be as affected.
"It is important to note that insurance companies set rates through rating regions within states, so where a person lives within the state will significantly impact their premium increase or decrease," de la Torre says.
And if an employer provides your health insurance? Expect your rates to go up as well, albeit not as dramatically. A study from the National Business Group on Health suggests health insurance costs for employers will rise six percent next year. Employees will likely pay five percent more for health insurance from an employer in 2017.
“While employers have been able to keep increases in check for the past few years, costs are still running at more than twice the rate of inflation and general wage increases, thereby threatening affordability," said Brian Marcotte, president and CEO of the National Business Group on Health, in a recent press release. "These cost increases, while stable, are both unsustainable and unacceptable."
Why are Health Insurance Rates on the Rise?
As health care expenses rise, insurance companies need to charge more to make a profit. Even still, insurance companies are losing money, especially through Obamacare.
Last week, Aetna made news when they announced they were going to stop selling health insurance through most of the Obamacare exchanges. They are set to reduce the amount of plans they sell by about 70 percent in 2017.
In doing so, they became the third large health insurance company to pull out of the . In April, UnitedHealth Group announced their decision to leave most of the ACA exchanges. This was followed by Humana in July who also wants to drastically reduce the amount of plans they offer.
The reason these companies are leaving Obamacare is simple. They aren't making enough money.
And in Aetna's case, a big reason why they decided to leave could be because the government blocked their deal to buy Humana. By not letting the merger happen, Aetna argued they no longer had the funds to participate in Obamacare.
Truthfully, there isn't one reason why health insurance costs are snowballing. Here are some of the biggest factors causing these higher premiums:
Risk Pool and High-Cost Claims
Initially, insurance companies set their rates too low when calculating Obamacare premiums. This is because they didn't know how to evaluate the risk pool, which is often made up of people sicker than insurers realize.
Because companies set their premiums too low, they struggle to pay high-cost claims that end up coming in from their not-so-healthy customers. In fact, the National Business Group on Health found that 73 percent of employers rated high-cost claimants as the second highest cost driver in health care.
Marketplace Insurers Aren't Receiving Extra Money
According to The Fiscal Times, insurance companies will no longer be able to rely on the reinsurance program to help fund high-risk customers next year. Under the ACA, the reinsurance program calls for the federal government to reimburse health insurers for enrolling high-cost individuals.
Although payments have slowly lessened over the years, the program will completely stop in 2017. The ACA predicts this could raise rates from 4 percent to 7 percent.
According to a May 2016 issue brief from the American Academy of Actuaries, underlying growth in health care costs, including new high-cost specialty drugs, are one of the major drivers of increasing premiums.
Similarly, a survey from the National Business Group on Health found pharmaceuticals, and specifically specialty drugs, to be the number one reason health care costs are going up.
Thirty-one percent of participants cited specialty pharmacy as the biggest proponent to rising health costs. Eighty percent of employees cited specialty pharmacy as one of the top three reasons for increasing prices.
Ways to Save on Health Care
Although higher costs are almost a guarantee in 2017, that doesn't mean you can't save on your health care. We've compiled a list of tips that’ll help you save money on your health insurance and other medical bills:
Compare Insurance Quotes
Customers can almost always benefit from shopping around. But when it comes to insurance, it becomes even more vital. This is because insurance companies weigh factors differently when determining your premium. One insurance company may increase your rate more heavily based on your age. Another might care more about your location.
When you're comparing health insurance quotes, don't overlook the health insurance marketplace. You may find plans with lower monthly premiums than from private insurers. And although insurance rates are generally lower through your employer, it never hurts to make sure you're paying the lowest cost possible for the best care. By shopping around, you can find the most affordable price for your needs.
Your Age Matters
If you're under 26 years old, check to see if you can stay on a parent's insurance plan. If your parent's plan includes dependents, you'll be able to use their insurance. This holds true even if you get married, have a child, or move out of your parent's home, among other life events.
Older than 26 but under 30? You can't stay on a parent's insurance plan, but you can still save money.
Individuals under 30 are eligible to buy a catastrophic health plan through Obamacare. These plans are best for people who are generally healthy and only rely on health insurance if they get seriously ill. Catastrophic plans are attractive to some because they have low monthly premiums. But be aware, if you use your health insurance, you'll have a high deductible close to $7,000.
Premium Tax Credits
If you have a health insurance plan through Obamacare, you may be eligible for a premium tax credit. You'll find out if you qualify when you apply. If you do, you'll pay a lower monthly premium. Because the amount of money you get for your tax credit depends on your income, you'll have to report any changes to the marketplace.
According to de la Torre, about eight in 10 of the uninsured will be eligible for financial assistance in the marketplace. The best way to find out if you qualify is by visiting HealthCare.gov. In general, you can expect to save if your expected income is between $11,770 and $47,080 for an individual, or between $24,250 and $97,000 for a family of four in 2016.
You may also qualify for cost-sharing reductions. Like premium tax credits, you'll find out if you qualify after you apply for a marketplace plan. This is also based on your income.
If you're eligible, you'll spend less on out of pocket costs such as deductibles and copayments. You also will have a lower out-of-pocket maximum. But to receive cost-sharing reductions, you'll have to enroll in a Silver plan.
Shop Around for Prescriptions
Another way to save money is to shop around for medication. Like insurance, comparing prices from multiple companies will help you find the best deals on prescription drugs. Use sites like GoodRx.com and EasyDrugCard.com to compare prices.
And remember, just because one medication is cheaper at one store doesn't mean every prescription will be. You'll need to shop around every time to find the best rate for that specific drug.
Healthy Living Discounts
Check with your insurance company and employer to see if they offer any wellness discounts. Many insurers and employers offer incentives to people who show they're living a healthy lifestyle. These benefits can be rewards for joining a gym or exercise program, eating healthy, or not smoking.
Under Obamacare, several preventative care procedures are 100 percent free of charge. These can include blood pressure, HIV, and high cholesterol screenings.
Check with your insurance company to find out what preventative care costs they will pay for in full. They may cover additional preventative procedures not required under the Affordable Care Act such as an annual physical.
Take advantage of them. After all, a free health exam might help you find out about a health issue in advance before it becomes worse. Treating a medical problem early on is more affordable (not to mention better for your health) than finding out after the disease has already progressed.
Ask if Treatment is Necessary and Covered under Insurance
Doctors often suggest a number of blood tests, shots, and other procedures you didn't initially plan for or want. But just because a doctor advises you to get a blood test, that doesn't mean you need to do it.
While it's important to stay healthy, a doctor might want you to get an unnecessary test that could cost hundreds of dollars. Worst still, you probably won't realize how much it costs until you get the bill in the mail.
Ask if the treatment is necessary, or just a suggestion. Should you decide to go through with the procedure, be sure to check with your doctor whether or not it's covered by insurance. Then, find out how much it'll cost you out of pocket. Of course, do this before they go through with the blood sample or other medical evaluation.
Flexible Spending Account
Some employers offer Flexible Spending Accounts (FSA). FSAs let you put aside money from each paycheck into a fund to be used specifically for health care costs. This account can save you money because anything you contribute is pre-tax.
Just make sure to read the fine print. Some companies have a use it or lose it policy. Fail to use all of the money in your FSA and you won't be able to carry it over to use next year. If so, remember to carefully budget your health care costs ahead of time and check with your employer about what kind of expenses qualify as health care costs.
Health Savings Account
Like an FSA, Health Savings Accounts (HSA) are funds that you can make pre-tax contributions for health care expenses. Not only is an HSA tax-deductible, but you can make withdrawals without paying taxes provided you're using the money for medical costs. But unlike an FSA, Forbes.com notes that in order to have one you need to be have a high-deductible health insurance plan.
Another key difference is that HSA accounts let you carry over your money from year to year. This account also can follow you to your next job should you leave your current employer. FSAs are traditionally employer-based, and you can’t keep them when you switch companies.