What’s Causing Health Care Premiums to Rise?

As insurers notify enrollees that their premiums will be rising in the upcoming year, how much of those premium increases are due to the Affordable Care Act? Merrill Matthews, resident scholar with the Institute for Policy Innovation, explains which factors are behind the rise.

A number of factors related to the Affordable Care Act can cause premiums to rise as well as fall. In fact, explains Matthews, premiums are merely based on guesses, as insurers set premiums by guessing their costs for the upcoming year. With so much uncertainty surrounding the Affordable Care Act, premiums are unlikely to be set at the right level. Additionally, according to Matthews:

– New premiums may be an attempt to correct for errors in the previous year. If insurers set premiums higher than necessary in 2014, they may not have needed to raise them as much for 2015.
– The Department of Health and Human Services has warned insurers against raising premiums by more than 10 percent, threatening to analyze any such increases. As a result, insurers have an incentive to raise premiums by smaller amounts from year to year, to avoid attracting attention from HHS.
– Some Americans are still allowed to be in noncompliant (and therefore cheaper) plans. In 25 states, non-ACA-compliant plans are allowed to run through at least 2015.
– Loopholes could allow up to 90 percent of the uninsured to avoid paying the individual mandate penalty, meaning that many young and healthy people are staying out of the insurance market. With more sick individuals in the market, premiums rise.

Notably, Matthews stresses that lower premiums are not necessarily an indication that health care prices are falling, as insurers can lower premiums while simultaneously raising deductibles or copays, or taking similar action that increases the cost of insurance to the enrollee.

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