Why a higher uninsured rate means more expensive premiums
Premiums likely to rise in 2019
A new study by the Commonwealth Fund reports that the uninsured rate has been rising since 2016, and about 4 million more Americans are uninsured today than two years ago.
One consequence of fewer insured Americans is that premiums will likely rise for the consumers who do continue to buy health insurance, beginning as early as next year.
We don’t know yet how much prices will increase, but we will have more information about this soon. Insurers have to decide this summer if they intend to sell individual coverage in 2019 and file with the state for any rate increases.
But before that happens, let’s understand why more Americans are going without insurance, and how that leads to more expensive coverage for consumers who do purchase health plans.
Why the uninsured rate is rising
Some people are drawing a straight line from the new tax law setting the individual mandate penalty to zero and the increase in the uninsured rate. Taking these steps can provide more peace of mind around health care in retirement.
One of these people is Tom Price, the former secretary of Health and Human Services, who explained in a recent speech that without the mandate, younger and healthier consumers will drop out of the market. As a result, costs will rise for the consumers who remain.
Why is this the case? The Affordable Care Act’s individual mandate required most consumers to carry health insurance coverage or pay a fine. This mandate meant more young and healthy consumers were buying insurance, offsetting the costs of covering older and sicker enrollees.
Technically, this mandate is still in place, but the Republican tax bill eliminated the penalty beginning in 2019. Though the penalty still applies for 2018, some consumers have decided to go ahead and drop coverage.
One reason for this is that the cost of health insurance on the individual market has been on the rise for years, spiking dramatically in some regions. Many consumers are covered by subsidies, which insulate them from these increases, but higher-income consumers are not.
Over the last few years, some of these consumers have found insurance prices too high to maintain. Many younger and healthier consumers, who feel they are less likely to need health coverage, have decided to go uninsured or pursue alternative coverage options.
One alternative coverage option is a short-term plan. Under the Obama administration, these plans were sold under limited circumstances. Short-term plans were meant to be used by consumers changing jobs or during other transitions, but not as long-term coverage.
However, the Trump administration has proposed lengthening the duration of short-term plans and allowing them to be renewed.
These plans are far less expensive than comprehensive medical coverage, because they are not required to cover pre-existing conditions and may have other coverage restrictions that individual market plans do not have. For example, they may not cover primary care or prescriptions.
Even so, many people expect that healthier consumers who are eligible for these plans will drop comprehensive coverage and purchase these cheaper plans instead.
What this means for consumers and carriers
Likely, carriers will use a rising uninsured rate and fewer healthy consumers in the marketplace to justify higher premium increases.
As a result, consumers should expect premium increases for their 2019 health plans.
A recent study published for the Association for Community Affiliated Plans predicted that the combination of no individual mandate penalty and expanded short-term options will increase individual health insurance premiums between 10.8 percent and 12.8 percent.
Consumers who are eligible for premium subsidies will not be impacted as much by these increases, but those without subsidies will face the full sticker price for coverage.
In other words, the group of people who will be most impacted by rising insurance rates are higher-income consumers with health conditions.
These consumers will continue to face the full cost of premium increases, and will not have access to alternative insurance options due to their health status. If costs continue to rise without additional regulatory changes, coverage may become out of reach for these consumers.
This column was originally published in The Tennessean.
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