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Individual Health Insurance Purchasers Face Highest Rate Increases

Because of the Affordable Care Act (ACA), the cost of everyone’s health insurance will be going up.  But the cost will be going up the most for the very people the health care reform law bigstock-Brunette-looking-worried-over--40958140was supposed to help – people who must purchase their own individual health care plans.  These people, 27 million of them, are not covered by any employer’s large group plan.  They’re on their own.  They’ve always faced higher rates and, because of that, frequently go without health insurance.  Right now, however,  it looks like the Affordable Care Act will actually make things worse for them.

Major health insurance companies across the country are predicting premiums for individuals buying their own plans to climb 40 – 116%.  Even the subsidies offered to people buying health insurance on the new exchanges won’t be enough to offset such large increases.

The cost of any insurance is determined by centuries-old formulas based on how much risk insurers can accept in insuring people against calamities. If there’s a high degree of probability that they’ll need to pay out more because of circumstances beyond their control, they have to increase the price of the insurance or go out of business.  This risk can be mitigated if large groups of people purchase the same insurance plans because it’s unlikely that they’ll all suffer hardship.  This is why individual insurance plans are more expensive… there’s no one else to share the risk.  The ACA seemed to address this by requiring health insurance companies, after January 1, 2014, to group all individual and small group participants into one big risk pool, theoretically lowering the overall risk as well as the cost of health insurance for these people.   Unfortunately, that won’t work.

Before we explain, let’s take a look at how the ACA will raise the cost of health insurance for everyone this January.

For starters, health insurance plans in 2014 can’t charge differently for people on the basis of their health status, sex, occupation, credit worthiness or how long they’ve had coverage.  Age and smoking can be considered in charges but only on a limited basis. The concept of charging everyone the same regardless of the higher risks carried by certain categories of people is called community rating; and states that have forced their health insurers to use it have larger and fewer insurance companies and higher premiums than the rest.  Now the entire country will face these consequences.

Guaranteed issue, another insurance concept, is guaranteed to raise insurance rates as well.  This occurs when all insurance policies must accept everyone regardless of their health condition and regardless of whether they’ve had health insurance up to now.  Oliver Wyman Management Consultants predicts this alone will push premiums up by 40%.  More about guaranteed issue later….  The sad part is that the very real plight of people not able to get insurance because of pre-existing conditions could have been handled by subsidized risk pools for such people.  Instead,  we’ve introduced a moral hazard that will degrade our national sense of fairness and honesty and cost us millions in dollars that could be put to better use.

Another integral concept of the insurance business is to limit losses by capping the total dollars an insurance plan will pay out in one year to any one policy holder. Beginning 2014, insurers must, according to the health reform law, cover all yearly medical expenses on all health insurance plans no matter how high these costs might be.  This will not only raise premiums for everyone but raise the overall cost of medical care as well.  When the sky’s the limit, prices will go up….. ask any economist.  People can go bankrupt over medical costs.  That’s another real problem.  Like the issue of insuring those with pre-conditions,  the ACA uses an ax and sledgehammer on the problem instead of specifically helping those people directly.

There’s one premium-cost raiser that is aimed specifically at individuals and small groups.  It’s the Essential Health Benefits (EHB) that the ACA says must be covered in every health care plan sold to individuals and small groups.  These benefits are listed under 10 broad coverage categories that most plans today don’t cover such as mental health, prescriptions, drug rehabilitation, maternity and newborn care plus pediatric vision and dental care..  Only 2% of health plans today include all the services listed under these Essential Health Benefits. What this means is that individuals, whether they want or need this extra coverage, must pay for it.

The authors of the ACA decided the best way to lower the cost of health insurance was to force everyone to buy it.  This doesn’t affect workers whose employers provide health benefits.  It doesn’t affect poor people or old people.  The government covers them.  Who’s left?!  It’s the individuals and small employer groups that this controversial provision targets.  The health care reform law calls for insurance companies to group these people together into their own large risk pool to lower their premium costs.  This, it turns out, is nothing but a sucker punch.

The penalty for not buying health insurance, $95 rising to $695 after 2 years, is tiny compared to the cost of the insurance.  Even later, when the penalty is based on income, it still is much less. Healthy people will forgo costly health insurance, pay the fine, and figure they’ll get health insurance when they need it because of guaranteed issue.   The people and their families who have conditions requiring immediate health care will predominate the new risk pool.  With few healthy people paying for many health care costs, the cost of health care will go up even more for the very people the Affordable Care Law was supposed to help.  Affordable, this law is not.

 

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