The Affordable Care Act (ACA) has created a great deal of confusion for individuals who need insurance coverage. First, people need to know whether or not they are in compliance with ACA. So, that’s one unknown. Once you get ACA coverage, a second unknown is the increases you face with your insurance premiums.
Your rates are going up- but how much?
Programs that kept premium increases lower
There are two taxpayer-funded programs in ACA that helped keep insurance premium increases low. Both of those programs are ending at the end of 2016.
Stephen Parente, a Professor at the University of Minnesota, explains these two programs in the Wall Street Journal:
- Risk Corridors: Obviously, you can’t price health insurance without estimating your costs. Insurers made estimates on the amount of money that patients would spend on health care. Risk corridors are in place so that taxpayers cover the cost of patients who spend more on healthcare than predicted. Essentially, the “cost overruns” are absorbed by the taxpayer- and not directly passed on to the insured person.
- Reinsurance: Reinsurance is common for many types of insurance. Reinsurers take on risk from other insurance companies. Say, for example, that Company A sells car insurance. They pay premiums to Company B to reinsure their risk. If Company A’s car claims are much higher than expected, their reinsurance with Company B will help cover the cost of those claims. In the same way, ACA had reinsurance to cover the cost of patients with the most expensive claims ($70,000+ in claims in 2015, for example). Taxpayers cover a portion of the cost for these patients with high dollar claims.
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The Centers for Medicare and Medicaid Services (CMS) points out that these two programs artificially lowered the premiums for ACA insurance policies between 10% and 15% in 2014. As an example, the reinsurance portion of the cost was $7.9 billion in 2014.
Premium increase requests
State regulators must approve premium increases for ACA insurance plans. Since ACA has been in place for several years, insurance companies now have more actual data to justify their rate increases.
By law, insurers must receive regulatory approval for increases of more than 10%. That makes sense- it requires an insurer to justify large price hikes.
Insurance companies can now justify their increases with actual cost history. Because the two supporting programs are ending, the experts suggest that price hikes will be spread over the years 2016 and 2017. Those hikes could average 8% to 11% in 2016. Given the cost of an insurance policy, a price hike of that size will impact your personal budget.
Be informed, plan ahead
You can take steps to address these insurance premium hikes. First, get informed. Check out the healthcare.gov website for updates. If your health insurance is outside of ACA, check your insurance company’s website.
Take a look at your personal finances. Adjust your monthly budget to assume a roughly 10% increase in your insurance premiums. Don’t wait- work that assumption into your budget now.
These steps can help you cash flow increases in your insurance premiums- and give you some peace of mind.
Have you made adjustments to your personal budget for insurance premiums? I’d love to hear from you.
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