Why Health Care Premiums Are Rising Under 'Obamacare'

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The Obama administration acknowledged on Monday that premiums for health care plans created under the president’s signature Affordable Care Act will rise substantially next year — another hiccup for the law, also known as “Obamacare.”

Insurers are set to raise the premiums for plans sold through HealthCare.gov by an average of 22 percent in 2017, the U.S. Department of Health and Human Services said in a report. This is approximately triple the percentage increase from 2015 to 2016, when premiums increased by 7.5 percent.

HHS Secretary Sylvia Mathews Burwell cautioned that insurers are “continuing to adapt” to a market that looks very different from before “Obamacare,” one in which they are trying to compete for costumers “based on price and quality” and not necessarily by “finding the healthiest customers.”

Premiums are also affected by efforts to undermine the health care law, she said in a statement Monday, including certain states’ decisions not to expand Medicaid and actions taken by a Republican-led Congress to block funding for the law.

“I encourage anyone who might need 2017 coverage to visit HealthCare.gov and check out this year’s options for yourself,” Burwell said.

While some may want to blame the health insurance companies and stockholders, there are economic and financial reasons that explain the rate increases.

As the industry rolls out premium increases in 2017, where will consumers feel the most pain? Here’s a look at the price hikes and what it means for individuals with plans created under “Obamacare” and for those looking to sign up for coverage:

What to Know About the Enrollment Period for 2017

The Affordable Care Act mandated that insurance companies may not deny insurance to or charge more for people with existing conditions. While this allows everyone to access health care plans, some patients have chronic medical conditions that significantly increase the amount that insurance companies must pay out in claims.

The enrollment period opens Nov. 1, and plans are available on HealthCare.gov and most state-run exchanges for millions of Americans. Even though average premiums on some plans will increase, HHS says more than 70 percent of those purchasing insurance through the marketplaces are eligible to get a health plan for less than $75 a month for 2017.

To access coverage effective on Jan. 1, consumers must decide on a plan in the coming weeks, and it is expected that the last day to register for a 2017 health plan is Jan. 31, 2017. For those looking for better deals while shopping for coverage, the administration recommends a low-cost plan, often with more limited benefits. The administration says some consumers may find lower-cost plans by switching out of their current ACA plan.

Predictions Were Wrong

When “Obamacare” was implemented, many insurance companies did not have information on their new customers, who might not have had health insurance previously.

A 2015 report from consulting firm McKinsey & Co. found that insurance companies lost $2.7 billion on the individual market, in part because they had to pay for more claims than expected.

Complicating forecasts is the fact that patients who are in the top 5 percent of health care spending account for 49 percent of health care expenditures, according to the Kaiser Family Foundation. Additionally, when people with illnesses know that they will need more health care, they have a tendency to buy more comprehensive health insurance.

While the government has several programs to help redistribute insurance risk, not all companies have benefited, resulting in continued losses.

The disparity between predicted and actual costs for insurers means some insurers are making less money than predicted from “Obamacare” programs.

Insurance Companies Leaving the Marketplace

In many markets, insurance companies that currently offer money-losing plans will discontinue those options.

UnitedHealthcare and Aetna have signaled their intention to leave many markets. This leaves less competition. In five states — Alabama, Alaska, Oklahoma, South Carolina and Wyoming — there will be only a single company offering plans through the marketplace, according to the Kaiser Family Foundation.

The average number of insurers participating in the marketplace in states that use HealthCare.gov will be 3.9 per state in 2017 — down from 2016, when there was an average of 5.4 per state, according to the Kaiser.

A single plan on the marketplace means there is no competition between companies that could help drive down prices for consumers.

Health Care Is Expensive

The cost of medical care and drugs is high and increasing. While higher prices for drugs and medical devices like EpiPens have grabbed headlines lately, overall health expenditures have grown somewhat slowly, about 5 percent annually, in recent years. But the Kaiser Family Foundation says there’s evidence those numbers could go up more quickly.

New medical treatments and drugs, especially for conditions like cancer, are especially pricey. As more sick people have insurance, they can get more expensive treatments that previously they paid for themselves or could not afford. These expensive procedures can drive up premiums for the entire pool of insurance customers.

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