Why Health Insurance Prices Will Continue To Rise in 2016 and Beyond

Why Health Insurance Prices Will Continue To Rise in 2016 and Beyond
January 14 01:00 2016

Since 2013, health insurance companies have been losing money on the plans they offer through Affordable Care Act (ACA) exchanges. Health insurers are scrambling to find appropriate price points for the products they offer . If the premium for individual plans is set too high, insurers alienate customers and drive them towards competitors who price their plans lower. On the other hand, lowering premiums can impact profitability because of revenue drops, and a higher risk of insufficient funds to compensate for high operating costs. Some insurers have responded by threatening to pull out of the exchange. For consumers, this scenario means one of two things – higher prices or fewer plans to choose from. This messy situation begs the question – how did we get here?

National health insurance and the exchanges are still relatively young. Companies and legislators are continually learning new things as they go along – things that were difficult to predict ahead of the 2013 launch. A painful lesson learned in 2015 was that individuals on the exchange are much more likely to use the plans they pay for, which forced insurers to pay out for different medical services rendered. Prior to the ACA, these companies chiefly dealt with employers providing insurance benefits to their employees. This working segment of the population has been historically healthier than the rest. A 2012 Gallup Poll revealed that Americans who are not in the workforce report the worst health – with a total Physical Health Index of 68.8 – over 15% lower than the workforce. Individuals, who previously couldn’t get health insurance before due to unemployment or pre-existing conditions, suddenly found themselves with coverage.

The knee-jerk reaction to increased operating costs has been to “adjust premiums” – in other words, increasing prices . The Kaiser Family Foundation found that prices on a benchmark plan, across all major cities, will go up 10.1% in 2016. Continually rising prices, however, doesn’t appear to be a surefire solution for all insurers. New players enter the marketplace each year, undercutting prices to get their foot in the door and grab some market share. As these new insurers grow, however, many will be inevitably forced to increase prices due to the same market conditions.

The vicious circle of trying to do business on the exchanges is best exemplified by what’s happening to Consumer Operated and Oriented Plans (co-ops). These are nonprofit health insurance companies that were created by the ACA in order to increase competition on the exchanges. Due to the controversy surrounding how they should be funded, co-ops raised less money than initially planned, leaving little room for error in their operating margins. When the co-ops ran into the same problems facing large insurers such as Aetna AET -0.96% Inc. and Anthem ANTM +1.47%, they began to sink. As of 2016, only 13 of the original 23 co-ops will continue to sell plans – close to half had shut down. Arches Health Plan was one of the most recent co-ops to announce it will be closing its doors, leaving 35,000 individuals to shop for new plans.

While companies larger than these co-ops can afford to stick around longer and lose more money than co-ops, it makes little business sense to do so. UnitedHealth Group UNH +2.68%, America’s largest health insurer, made headlines just a few months ago when they announced that they might leave the exchange after the 2016 season. The company’s CEO, Stephen J. Hemsley, cited the issues discussed above as the chief driver in their problems on the exchanges. During an earnings call with investors, Aetna CEO Mark T. Bertolini reported that the insurer will be cutting down its exchange offerings from 17 to 15 states, as it deals with the challenging business. If things continue down this way, consumers should expect one of two things – less plan options or higher prices.

What Can Consumers Do To Make The Most Out of This Situation?

If you are one of the over 10 million individuals who will be enrolled in an exchange plan in 2016, it’s best to get the most you can out of the plan, and squeeze every penny – especially given the increasing prices. Here are two ways to save money with health insurance in the coming year.

Read full story at Forbes
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