4 Factors Driving Rising Healthcare Insurance Premiums in 2019

Did you know that health insurance companies are already at work setting their premiums for 2019? This year, that endeavor may be more challenging than in previous years; politics, evolving medical costs and actions by independent states are all contributing to the rise of healthcare insurance premiums.

Key drivers for premium changes

According to the American Academy of Actuaries, four significant factors are driving 2019’s premium numbers:

Higher treatment costs

Expenditures for both medical services and prescription drugs are expected to rise by as much as 5 to 8 percent, which is similar to 2018’s rate hikes. Medical costs can vary greatly from region to region as population demographics change. They can also vary from plan to plan based on the insurer’s opportunity to negotiate management protocols and fees.

Changing regulations

Both state and federal governments make, change or nullify rules that impact health care costs. The ACA authorized the federal government to subsidize insurers to offset their costs when providing coverage to low-income Americans. In October 2017, however, the current administration discontinued those subsidies, and in 2018, insurers raised their premiums to account for that lost funding. The response to the debacle by state insurance regulators has been mixed:

  • Some allowed the raising of premiums only in the policies affected by the loss of subsidies.
  • Others agreed to spread the extra cost across all policies.
  • Still, others denied insurers the opportunity to make any changes to offset the losses.

Shifting risk pool composition

Insurance companies pool the risks of many members to establish their annual premiums, with the expectation that the lower costs associated with healthier patients will offset the higher costs of those with more health challenges. Larger risk pools result in more stable and predictable premium categories.

The ACA required that all insurers use a single risk pool when determining the values of their premiums, regardless of age or relative health, so premiums now reflect the wider diversity of health considerations in that larger pool. When the individual mandate was abolished, people were permitted to drop their health insurance, and the belief is that those with better health forego purchasing a policy they might not need. The result is a risk pool more heavily comprised of unhealthy members, causing insurers to raise premiums to compensate for the elevated cost of servicing their enrollees.

State level changes

The individual states are scrambling to discern what the federal health care changes mean to their residents. Some, for example, are offering their own subsidies through reinsurance programs, while others are exploring the possibility of instating their own mandate penalty for residents who elect not to purchase health insurance.

Other rule changes at the federal level will also impact premiums in 2019. The ACA enacted the Health Insurance Providers Fee (HIP), which is essentially a federal tax on healthcare insurance premiums. Insurers pass this fee onto their members in the form of increased premiums. Although Congress put a moratorium on the HIP fee for 2017, it is on track for collection in 2018, meaning it will also play a part in how the insurance companies assess their premiums.

To learn more about how risk adjustment will be impacting premiums in the coming year, complete the contact form on the sidebar. If you’d like to hear more about this topic, please subscribe to the HCIM newsletter and blog on the sidebar.