With another year almost done, 2017 will see a shift in health care. Among those changes will be a rise in premiums. According to a recent study from the National Business Group on Health, health insurance premiums are expected to increase by about 5 percent in 2017.
This may seem startling, but it’s good to know exactly what’s going on. Here are three different factors contributing to this anticipated rise in premiums:
1. Changes to the Risk Pool
One of the foundations of the insurance industry is the pooling of risks. This allows insurance companies to use the healthier (and therefore less costly) members of the group to subsidize the costs of the less healthy (and therefore more expensive) members. Historically, a larger risk pool led to more predictable and stable premiums.
However, with the advent of the Affordable Care Act (ACA), and particularly its prohibition on excluding or increasing premium costs of individuals based on their health status, the composition of the risk pools have gotten sicker on the whole. This has led to an increase in health insurance premiums, so insurance companies can offset the additional medical costs of its coverage base.
2. Rise in the Underlying Growth of Health Care Costs
American health care spending is on track to grow from $2.9 trillion in 2013 to $5 trillion in 2022, NPR reports. While increases in health care spending are still relatively low overall, this isn’t the case with respect to prescription drug spending, which is expected to increase at a faster rate than other medical spending.
Spending on prescription drugs is anticipated to keep growing, according to Pew Charitable Trusts — a trend that’s largely attributed to the increased need for expensive specialty drugs.
3. End of the ACA’s Transitional Reinsurance Program
During the initial three years of the ACA’s implementation, the federal government has operated a transitional reinsurance program. It uses funds collected from group and individual health insurance plans to partially reimburse high claims in the individual ACA market.
This transitional reinsurance program is scheduled to conclude at the end of the 2016 benefit year. Therefore, no contributions will be collected and no claims will be reimbursed by this program beginning in 2017. This is expected to lead to an increase in individual market rates next year.
While some of these rising costs are unavoidable, talk to your insurance provider about possibly narrowing your network or lowering how much you pay. Keep track of your health care spending and your selected company plan to make sure you’re getting the most out of your insurance, at the best price.
This content is provided solely for informational purposes. It is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.
Avi Sinensky is an attorney at Meltzer, Lippe, Goldstein & Breitstone LLP in New York, where his practice focuses on corporate and employee benefits law. He advises clients on strategies to overcome Affordable Care Act challenges and to capitalize on related opportunities.