Why Has Health Insurance Gone Up So Much?

As an American, rising healthcare costs are nothing new. Even among high income countries, the United States far exceeds comparable countries in terms of health spending per person. In 2017, Americans spent an average of $10,200 per person on health care which was 28% higher than the next highest spender per capita, Switzerland.

As health care costs go up, so do health insurance premiums.

Recent increases in health insurance premiums mostly affect people who buy their own insurance but those with employer-sponsored coverage are also affected to a degree. People who get insurance through Medicare, Veterans Affairs, and Medicaid haven’t seen major increases in recent years.

So, what’s behind the increase? Here are the reasons your health insurance costs are on the rise.

Insurance Companies Didn’t Predict Costs Accurately

When the federal government and insurance companies began working together to expand health insurance coverage, it turns out insurance companies didn’t do the best job of estimating the cost of insuring so many new people. A report in 2015 found that health insurance companies lost about $2.7 billion in the individual health insurance market due to covering more claims than predicted.

Insurance companies have a better understanding of their pool of policyholders now and have adjusted premiums to reflect their costs.

Insurance Companies Are Leaving the Marketplace

Many insurance companies have discontinued plans offered on the marketplace because they were losing money. A handful of companies like Aetna and United Healthcare left many markets completely. This reduced competition and resulted in higher prices.

Obamacare Cost-Sharing Reductions Were Ended

In 2017, the Trump Administration announced it would end the cost-sharing subsidies of the Affordable Care Act that helped low-income Americans afford health insurance. When the subsidies were ended, the list prices for coverage through the Affordable Care Act marketplaces increased sharply.

While the premium subsidies were left in place, the lack of cost-sharing reductions or CSR led insurance companies in most states to add the cost of the subsidy to the Silver plan premium. This made the Silver plans disproportionately costly but it also made the premium subsidies larger.

The Individual Mandate Was Repealed

The Trump Administration also repealed the individual mandate aspect of the Affordable Care Act that required individuals to carry health care insurance or pay a penalty. This repeal has been credited with the initial rate increases in 2019. According to the Kaiser Family Foundation, rate increases this year range from 7% to 36% for the “benchmark” plan on which the ACA tax subsidies are based.

If you don’t qualify for a premium subsidy, you will feel the full cost of the premium hikes. For a family making $110,000 per year in Baltimore, where the average premium increased 36%, the premium would climb from $456 to $622 per month.

Chronic Illnesses Have Become More Common

Finally, it’s worth noting that chronic illnesses like hepatitis and diabetes have increased and they now account for 85% of health care costs in the United States. About half of all Americans have at least one chronic illness. Just 5% of the sickest people in the health insurance marketplace consume about 50% of total health care costs while the healthiest 50% consume just 3% of the health care costs.

While most of these patients have Medicare coverage, an increasing number have private insurance purchased through the marketplace since the Affordable Care Act banned insurance companies from charging more due to pre-existing conditions.