Rising Insurance Premiums

If the Affordable Care Act (Obamacare) really works, why are health insurance premiums rising? This question was posed to Consumer Reports who attempted to field the question but instead fumbled miserably.

Why has my premium gone up so much?
May 20, 2011 12:40 PM


Q. If health reform was supposed to bring prices down, why has my health-insurance premium gone up…a lot?

A. This question has come my way repeatedly, with only minor variations, ever since the Affordable Care Act became law in 2010. The short answer: insurers won’t be able to get away with this much longer.

The several pieces of health reform that will bring premiums down haven’t been fully implemented yet and until they are,insurers are raising premiums as much as they dare-and earning record profits as a result.

That’s about to change, and consumers will begin to notice it as early as this fall’s open enrollment season.

Two things are going on simultaneously. 

Insurers will have to start spending more of their income on health care. Insurers have traditionally called the portion of their premium income they spend on health care their “medical-loss ratio,” because to them a dollar spent on your health care is a loss to their profit margin.

Some plans, especially for individuals, have had medical-loss ratios as low as 55 percent, according to Sondra Roberto, a Consumer Reports attorney who works on health insurance rate issues. That means that for every dollar they collect in premiums, they spend 55 cents on health care and keep the other 45 cents for administration, marketing, and profit. But thanks to health reform, every insurance company must now have a medical-loss ratio of no less than 80 percent for their individual and small-group health plans and 85 percent for their large-group plans. If the companies don’t hit their targets, they’ll have to give rebates to customers at the end of the year.

Already we’re seeing early benefits from the new rule. In Connecticut, Aetna recently asked for an unheard of rate decrease so it can avoid having to pay rebates.

Rate hikes must be public. Starting next Sept. 1, insurers who want to raise rates by 10 percent or more willhave to say so in public. Not only that, they’ll have to give details on a standardized, consumer-friendly form posted on the federal health insurance portal at Healthcare.gov.

States can regulate insurance premiums however they want, and some have chosen not to block high rate increases. But even in those, consumers will be told whether regulators consider the rate increase “unreasonable” and can make buying decisions accordingly. “By shining a light on an often impenetrable world, we’re making it easier for consumers to find affordable coverage,” Kathleen Sebelius, secretary of the U.S. Department of Health and Human Services, said at press briefing on May 19.

Needless to say, we think this is a big win for consumers.



Apparently Nancy (who answers these questions) actually believes the political rhetoric about Obamacrap.

People who really understand the dynamics of risk management and health insurance pricing have a different view.

Let's look at this piece by piece.

Profits Are Good, Not Bad

Insurers are raising premiums on an as needed basis in order to remain profitable. Profit margins on health insurance average about 4% on gross premiums. That means that every $100 in premiums paid yields about $4 in profit. If carriers had no profit there would not be a noticeable drop in premiums.

Looked at another way, if carriers are not profitable they may lack the ability to pay claims which would be much more disastrous than making a nominal profit.

Medical Loss Ratio's Are Meaningless

The mandated medical loss ratio is a mixed bag. While some carriers may have had more margin than others on certain lines, the only thing that really mattered in a competitive market is how does their premium rates compare with others offering a similar plan?

As someone who has worked in the health insurance industry for over 35 years I can tell you consumers are not stupid. They automatically gravitate toward the plan that appears to offer the best value. They could care less about loss ratio's, profit margins or CEO pay. As long as they get a "good deal" the rest is superfluous.

Rate Hikes Are Necessary

All this talk about price transparency is mostly political grandstanding and saber rattling. If the carrier is experiencing a loss, or anticipates a loss on a line of business they must either raise rates to a sustainable level or withdraw from the market. Blue Shield of California has already announced their intention to pull out of the under age 65 major medical market. This decision comes on the heels of other small carriers who have likewise folded and stopped writing new business.

Over-regulation and micro-managing for the sake of winning votes means the consumer loses. When carriers stop offering product and the number of competitors in a market shrinks, prices rise and consumers lose.

Obamacrap does nothing to make health care, or health insurance more affordable in spite of what politicians and misinformed reporters may say.

Georgia Insurance Shop is the leading resource for information on health insurance and Medicare supplement plans in Georgia.



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