HEALTH CARE REFORM INDIVIDUAL INSURANCE – WILL MY PREMIUMS GO UP OR DOWN?

Health Care Reform

Individual Insurance – Will my premiums go up or down?

 

By: Casey Sanders

 

The Supreme Court ruled on Health Care Reform (Obamacare) and people want to know how it will directly impact them in a couple of years, as well as how it will impact the country long-term.  With all the media chatter and arguing about how great it will be or how much of a drain on our economy it will be, which is right?

I must first point out that this is a complicated question because it will impact different employers in very different ways and it will impact individuals in very different ways, as well.  To make this difficult question as simple and clear as possible, I will break it down into a couple of different categories  and this article will specifically address how it will impact someone purchasing individual insurance.  There will be a follow-up article describing the impact felt in the group market.

The impact on individual insurance:

Americans won’t really see dramatic change until January 1, 2014 when three major things happen for the first time: 1) State and Federal exchanges are set up that will give consumers one place to go for a side by side comparison of prices and plans which will compete with private insurance plans.  2) Federal subsidies based on income go into effect January 1, 2014.  3) The price spread in what insurance companies can charge between male and female, young and old, falls from the current more than 10 to 1 spread (approx. $75 for a young male to over $800 for an older male) to a 3 to 1 spread.

Taking these one at a time, and in reverse order, here is what you need to know:

1)      Insurers have yet to give us full guidance on what they will charge in 2014, but knowing the true cost for a private insurer to insure a 60 year old we anticipate that the 60 year old rate falls only slightly to $750/mo.  This means that the least expensive policy for a young healthy person will start at $250/mo. So, if you are a young and healthy person who makes a good income, you will see your current premium approximately double in 2014.  On the flip side, those leaving their job before Medicare eligibility age will be able to pay less than what they currently otherwise would for an individual health insurance plan.

 

2)      Many Americans will be impacted by federal subsidies used to buy health insurance.  To be exact, those making 400% of poverty level and below will have a cap placed on how much their insurance premiums can be.  While this is a difficult sliding scale, and it will require your family household income number to know exactly what your subsidy may be, here is a general idea:

  1. The single poverty amount is approximately $10,800/year.  The family of 4 poverty income amount is approximately $22,000/year in household income.
  2. So an individual making $40,000/year or less will receive some sort of subsidy to purchase their insurance.  Let’s look at a 30 year old starting out making $25,000 per year.  The most they would pay for health insurance is about 5% of their income ($104/month).  If the going rate is $250/month for this same person the federal government would subsidize the remaining $146/month ($1752 annually).
  3. Now we will look at a family of 4 that is struggling because one person is out of work. Since they have a household income of $40,000/year they would, at most, pay about 4.9% of their household income for their health insurance.  The family premium could not exceed $165/mo.  The typical premium for a healthy family of 4 is currently about $800/month.  That means that the federal government would subsidize approximately $7620/year.
  4. If you are an individual making more than $40,000/year, or a family with a household income of more than $90,000/year, there will be no subsidies to buy health insurance.

 

3)      In 2014, individuals will also have the option of purchasing health insurance through the exchanges.  Please note if you would like to receive a subsidy you must purchase through the exchange.  A state or federal health insurance exchange will likely be made up of multiple insurance carrier choices with all offering Bronze, Silver, Gold, and Platinum plans.  These will likely all have similar plan designs and prices.  While it may add choices to the individual market place, it is unlikely that the policies will be priced any more or less than what private individual policies will cost.

In summary, the impact on the individual health insurance marketplace will largely fall along income lines.  Lower income individuals would receive subsidies to buy in the state exchange plans and higher income earners would most likely purchase private insurance without subsidies.  Ultimately the biggest question will be how long the government can provide subsidies for 30+ million Americans to buy health insurance?  Because the cost of care was not addressed in the initial bill, we expect that tax increases will likely offset the premium subsidies.  The mandate to purchase insurance will also raise some tax revenue for the government.  If you choose not to carry insurance in 2014 you will pay the “whopping” fine of $95/year.  If I were young and low income I would choose to pay $9/month in a penalty instead of $100/month for insurance.

One thing I did not address is the impact of guarantee issue requirements.  Most insurance carriers expect this requirement (the inability to decline because of past health history) alone to raise premiums on individual policies.  Because we have not seen indications on how high the increases will be, I did not address it.  Guarantee issue on individual health policies opens new markets for lower insurance costs for the sick.  While it does benefit them, the cost of health care for everyone will increase when all else stays the same.

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