How the Affordable Care Act Will Impact Individual Premium Rates in 2014
In March 2013, major insurers began publicly warning individuals who purchase their own health insurance plans: Prepare for major premium increases when the the Affordable Care Act’s key provisions take effect next year.
Aetna’s CEO called the price hikes “premium rate shock” in an Associated Press article. The news, although not entirely a surprise, left some consumers scratching their heads and frustrated.
We spoke to Dave Keller, Chief Sales and Marketing Officer for IHC Health Solutions to gain a better understanding. This FAQ should help shed light on the whys behind potential premium increases to individual health insurance plans and who might feel the most impact.
Who will see these increases?
“Young adults who purchase their own health insurance are the demographic most likely to experience Affordable Care Act–related rate increases,” says Keller who explained that young men, especially can expect a fairly significant increase in rates.
With essential health benefits requiring plans cover certain services and items at no additional cost to the insured, the rate load will be redistributed among policyholders. While men may not have maternity coverage, per se, their rates will increase to cover the cost of maternity benefits.
America’s Health Insurance Plans reported on an Oliver Wyman study finding that “Young, single adults aged 21 to 29 with incomes beginning at about 225 percent of the FPL, or roughly $25,000, can expect to see higher premiums than would be the case absent the Affordable Care Act, even after accounting for the presence of premium assistance.”
Those who receive health insurance through an employer are unlikely to notice much impact. Group plans are generally richer when it comes to benefits such as maternity.
How much will rates jump?
This varies from state to state. For instance, those who live in places such as New York and Vermont may notice little if any change to what they pay because these states have already embraced many of the Affordable Care Act’s key provisions. On the other hand, residents of Georgia could see an increase anywhere from 55 to 100 percent and Ohioans as much 106 percent because health insurance will undergo a more significant overhaul in these states, according to studies cited in “The Price of Obamacare’s Broken Promises: Young Adults and Middle Class Families Set to Endure Higher Premiums and Unaffordable Coverage.” The report was prepared by the House Committee on Energy and Commerce, Majority Staff, Senate Committee on Finance, Minority Staff, and Senate Committee onHealth, Education, Labor & Pensions, Minority Staff. The report includes a state-by-state estimate on rate increases. According to this report, on average, individual policyholders will see an increase of somewhere around 32 to 40 percent,
I thought the Affordable Care Act was supposed to make health insurance more affordable, why might my rates go up?
In addition to the requirement that qualified plans offer richer benefits that more closely matching those offered by employers, Keller offers two main reasons:
1. Lower age band ratios
Health insurance companies take several factors into consideration when determining rates; age is one of them. Because older people tend to use more expensive and frequent services, they typically are rated at a higher level than younger people who tend to be healthier and use fewer services. The ratio used varies a bit among states; however, 5:1 is common. This means older individuals are charged as much as five times the premium rate younger individuals pay. Keller offers this example to show how the ratio works: If a 28-year-old might pays $100 in monthly premium, a 62-year-old on the same plan would pay $500—five times more.
The Affordable Care Act limits this ratio to 3:1. That means older individuals can only be charged three times the amount of younger individuals. In this scenario, if the company still rates the 62-year-old at $500, the 28-year-old will pay $166—that’s a 66 percent rate increase.
“Just in that shrinking of the age band, we will see a fairly significant increase in the younger ages,” Keller says. Americans in their 50s and 60s will not notice much, if any, impact.
2. Actuarial values
Keller calls this one of the biggest surprises for consumers, especially those on plans with extremely high deductibles—for instance, $7,500 and $10,000. Again, these consumers tend to be what the insurance industry calls young invincibles.
HealthCare.gov defines actuarial values as the percentage of total average costs for covered benefits that a plan will cover. Under the Affordable Care Act, insurance companies must cover 60, 70 or 90 percent of medical claims based on the insurance level chosen—bronze, silver, or gold. This means consumers on a bronze plan might be responsible for 40 percent of their total cost of covered services for the year, silver plan purchasers pay 30 percent, and gold plan users pay 10 percent. The out-of-pocket cost may vary depending on policy terms and consumer usage.
Deductibles on the upper echelon likely will not meet this requirement, which means those who purchase these plans may be forced to select plans with lower deductibles and higher out-of-pocket costs.
Health insurance companies may offer catastrophic coverage with lower actuarial values to individuals under age 30 and those who receive a certificate of exemption from an exchange because they cannot afford the minimal essential coverage offered. Bronze level coverage that costs more than 8 percent of household income after taking any subsidies into effect is considered unaffordable.
According to the final Health Insurance Market Rules, catastrophic health insurance plans must cover A- and B-rated preventive services and up to three preventive care visits per year without applying the deductible. They are not required to offer essential health benefits until the insured meets the Affordable Care Act’s annual cost-sharing limit.
Is there any way to avoid a higher premium rate in 2014?
The Affordable Care Act offers tax credits for people under age 65 who purchase their own health insurance plans through an exchange will take effect in 2014. These credits will be available to people whose income is lower than 400 percent of the federal poverty level. They vary from case to case, with fewer subsidies available the further you are from the FPL. The Kaiser Family Foundation’s Health Reform Subsidy Calculator can help you determine potential tax credit using income, age, family type and other factors. There is also a space to determine your FPL.
Keller says that next year many companies will offer consumers a choice: move to a qualified plan on January 1, 2014, or on your renewal date in 2014. If you purchase a plan later in 2013 and wait until your renewal in 2014, you can put off the higher rate for a bit longer. Of course, not all companies are allowing this option and it is also a temporary fix.
IHC Health Solutions, a member of The IHC Group, provides sales and marketing support for individual and family major medical, dental, employer group major medical, short-term medical, limited benefit medical, fixed indemnity, hospital indemnity, group life and disability insurance products from top-rated insurance companies.