Thedelicate subject of constantly increasing health insurance premiumsis a sore subject among many Americans. The early estimates ofpremiums in the exchanges suggest that health insurance premiums willincrease in the vast majority of states over what they would havebeen in the absence of the Affordable Care Act (ACA). According toscholars, this act has caused a substantial escalation in healthinsurance premiums. Moreover, there are some independent factors thatmay cause an increase in insurance premiums in the absence ofPresident Obama’s “signature” accomplishment.
Beforeexamining the autonomous factors that can cause an increase ininsurance premiums, this paper will first of all shed some light onObamacare and how it has caused a considerable increase in healthinsurance premiums. On the 23rdof March, 2010, the Patient Protection and Affordable Healthcare Actwas signed into law by President Obama. The law was employed toinitiate comprehensive health insurance improvements that would puthealthcare consumers back in charge of their health care. Since theimplementation of Obamacare, more than 34 million Americans thatcould not afford health coverage were able to get insured throughdifferent insurance providers.
Accordingto Brian and Hederman (2015), new costly restrictions and mandatesare imposed on health providers and insurers by Obamacare, whichsubsequently cause an increase in health care costs and thereforehealth insurance premiums. To explain their point, the authors drawattention to the fact that Obamacare mandates insurance companies toprovide a basic health insurance cover that caters for a “minimumpackage” of all-inclusive benefits. The more comprehensive a coveris in terms of coverage, Brian and Hederman (2015) argue, the higherthe premiums! In this regard, the authors note that the premiums inmany states have increased by 22-35 percent between 2010 and 2015since the implementation of Obamacare.
Additionally,Brian and Hederman (2015) note that many insurance providers in theinsurance industry take part in thorough client background researchprocesses to identify and quantify the risks of an applicant. Fromthis point of perspective, a healthy individual is less of a riskthan an overweight individual and thus enjoys lower insurancepremiums. Obamacare inhibits insurance companies from undertakingthese types of background research schemes that access the risklevels of applicants. As a result, blanket insurance coverage plansexecuted without prior risk assessment noticeably increase theinsurance premiums of the relatively healthy Americans. On the wordof the authors, Obamacare was put into play to equally spread therisks to all insured Americans which explains why the law bannedprior individualized risk assessment on applicants in the firstplace.
Thethird ripple effect of Obamacare on insurance premiums, as Morrisey(2014) notes, is that it imposes a 2.4% excise tax on the annualrevenues of health insurance companies. According to the author, atax levied on a health insurance provider is directly passed on tothe consumers of insurance products as higher insurance premiums.Morrisey (2014) also identifies an increased demand of healthinsurance coverage brought about by Obamacare as another factor thathas increased the insurance premiums charged by insurers. The authorillustrates that since the inception of Obamacare, the total demandof insurance coverage increased by 92% by the year 2014. It ispalpable that President Obama’s Affordable Care Act considerablycauses an increment in insurance premiums by way of increasing thedemands of insurance covers. Above and beyond the ripple effects ofObamacare on the health insurance premiums, there are otherautonomous factors that can affect insurance premiums. In thesubsequent section, this essay will delve into the factors that willcause an increment in health insurance premiums in a vast majority ofstates in the absence of Obamacare.
FactorsThat Cause an Increase in Insurance Premiums
Itis the view of Smith (2013) that an increase in the number of chronicconditions in the 21stcentury has a direct impact on the increment of healthcare costs.According to the author, chronic conditions cost the most in terms ofmanagement. It is important to note that chronic conditions usuallyneed long-term treatment plans, some of which are indispensablethroughout the life of a patient. In the United States, for instance,the number of individuals with a combination of more than one chroniccondition total to approximately 3% of the total population, butaccount for more than 20% of the total healthcare costs. The increasein the prevalence of obesity in the United States potentiallypredisposes an individual to the development of other chronicillnesses like hypertension and diabetes. Such an individual is moreof a risk than a healthy individual, implying that it will cost moreto cover an overweight American for the reason that he is likely tobe on long-term treatment for future ailments that will emanate frombeing obese. Consequently, it will cost more to cover individualssuffering from chronic conditions, which means that the insurancepremiums will increase further to foot the bills of long-term diseasemanagement.
Thesecond factor that can cause an increase in insurance premiums is therate of medical inflation in the United States. According to Morrisey(2014), in 2014, the rate of medical inflation was 10.34%, which was7.11% more than the normal rate of inflation for the same year. For2015, the general inflation was at 4% while medical inflation was at12.27%- a difference of 8.27%. As the author continues to explain,the primary cause of medical inflation in the United States is a highcost of modern medical technologies used to treat covered Americans.For example, the MRI machines used today are more expensive thanthose used twenty years ago. Therefore, the cost of conducting an MRIscan in a 21stcentury healthcare facility is more expensive than it was 20 yearsago. As new models and types of expensive technologies become morepredominant in America, insurance companies are increasingly addingthe costs to their insurance covers so as to remain competitive andrelevant in today’s turbulent healthcare industry consequentlymaking the insurance premiums increase in line with their increasedcosts of availing medical cover. It is important to note that therate of medical insurance premiums fluctuates from state to state,which means that the rates charged per state will be dependent onstate-specific factors.
Itis the opinion of Morrisey (2014) age is another critical factor thataffects insurance premiums. Statistically, the healthcare needs of atypical American increases consistently with age. To balance therisk, insurance companies often compute their premiums on the basisof age brackets (for example 35-50 years). Generally, the older theinsured person is, the more the insurance premiums. The explanationbehind this is that an older person stands greater odds of developingan illness (cancer, respiratory problems, or cardiovascular diseases)that will be costly to treat. As previously highlighted, thetreatment of such chronic illnesses is long-term hence insurancecompanies ask for higher premiums from older consumers to cover thehealth risks. Therefore, with the advancement of age, the insurancepremiums an American lady used to pay in her 20’s will not be thesame as the premiums she will pay in her 60’s. At advanced ages,she will be susceptible to the development of chronic illnesses thatwill cost her insurance company in treatment fees implying that shewill have to pay more to be covered at 60 years. Hence, age is yetanother critical factor that can cause an increment in insurancepremiums.
Smith(2013) perceptively states that it is very important to understandhow insurance companies work. To keep their financial books balanced,insurers adjust their tariffs annually (or half-yearly for somecompanies) in relation to their client’s portfolio. If the amountcompany X paid out in claims in 2014 is greater than the amount theyreceived in premiums from client Y, then the insurance firm willautomatically adjust its tariffs so that the amount received isgreater than the amount paid. Considering that the amount paid inclaims has been increasing at a higher rate than the premiumsreceived in the contemporary world, insurance companies are finding away to remove the deficit between the premiums received and the highhealthcare costs. Because insurance companies cannot use theirreserves to fill the financial gap, they decide to increase insurancepremiums. However, as Morrisey (2014) argues, the increase is spreadacross the entire client portfolio of an insurance company.
Toillustrate how this happens, let’s create a hypothetical situation.Client A pays 1,000 dollars per year in premiums. The client developsa medical condition resulting in a claim for 200,000 dollars. Thefollowing year, the client’s insurance premium will not increase by200,000 dollars but by the general increase applied to the entirefirm’s client portfolio. This implies that even if client B doesnot use his policy, his insurance premium will increase because ofthe claims of others insured by the same company client A in thiscontext. Thus, to balance their financial books, insurance companiescan increase insurance premiums within the limits certified by thelaw.
Inaddition to age, gender is also an important factor in the incrementof insurance premiums. According to Smith (2013), women usually payhigher insurance premiums than their counterparts for the reason thatthey have more reasons to visit the doctor more regularly.Furthermore, women are at higher risks of developing certain chronicconditions explaining why they have to pay more in insurancepremiums. Also, there are client specific factors that may occasionan increase in insurance premiums. For example, smokers usually payhigher premiums because they are pre-disposed to the development oflung cancer and other smoking related ailments like bronchitis.Insurance companies charge smokers an additional premium to cover forthe risks of treating long-term ailments (in case they occur) oravailing smoking-cessation products like nicotine patches andnicotine gum when they decide to quit. From this point ofperspective, the sedentary lifestyles of an individual can coerce aninsurance firm into increasing its insurance premiums to cover foranticipated liabilities. In addition to this, Morrisey (2014) notesthat profession is yet another client-specific factor that can causean increment in insurance premiums. Americans working in hazardousenvironments, or in jobs with high rates of injury, have to pay muchhigher premiums than those with considerably less perilous jobs.
Thedelicate subject of ever increasing health insurance premiums is asore subject among many Americans. Across all states, anunanticipated increment in insurance premiums was witnessed soonafter the implementation of Obamacare. This is because of the priceyrestrictions and mandates imposed on health providers and insurers byPresident Obama’s Affordable Care Act, which subsequently causes anincrease in health care costs and therefore health insurancepremiums. Above and beyond the increase powered by the ripple effectsof Obamacare, there are other autonomous factors that may cause anincrease in insurance premiums. Personal factors like lifestyle(smoking and drinking), profession, age, sex and family backgroundcan cause an increase in insurance premiums because of the risksinvolved in executing such insurance policies (Morrisey, 2014). Also,insurance companies can increase their insurance premiums to balancetheir financial records so that they can remain relevant andcompetitive in the insurance industry. According to Morrisey (2014),the rate of medical inflation is another factor that can cause anincrease in insurance premiums. In this regard, the author notes thatthe higher the degree of medical inflation, the higher the insurancepremiums. All these factors can cause an increase in insurancepremiums even in the absence of Obamacare.
Brian,B., & Hederman, H. (2015). Obamacare Increases Health InsurancePremiums. Retrieved August 3, 2016, fromhttp://www.heritage.org/research/reports/2010/09/obamacare-increases-health-insurance-premiums.Web.
Morrisey,M. A. (2014). Healthinsurance,2ndEdition. Chicago, IL: Health Administration Press. Print.
Smith,E. (2013). US health premiums rise. NjobsNature,500(7462),369-369. doi: 10.1038/nj7462-369d. Web.