The Affordable Care Act, known colloquially as "Obamacare," has caused health insurance premiums to increase each year, and rates are expected to grow again by an average of 22 percent when 2017 rates shift. Americans expected health care premiums to rise because of the passage of Obamacare, and the premium increases were also a major argument for those opposed to the approval of the Affordable Care Act. However, the cause of the rising health insurance premiums may be of benefit to the American health care system overall.
Why Are Health Insurance Premiums Increasing?
Traditionally, insurance companies benefitted from offering comprehensive insurance packages to healthy customers who could pay for insurance services without filing claims on a regular basis. The model allowed insurance companies to maximize revenue while still providing coverage for necessary procedures. However, patients with specific needs or a propensity for illness and injury often could not receive coverage from insurance companies, which allowed companies to sell insurance at lower premiums.
The Affordable Care Act made health insurance mandatory for American citizens by enforcing a tax penalty on those who did not have insurance. Obamacare also cushioned the sudden impact on individual budgets by subsidizing health care coverage for those with low incomes. Partner companies working with Obamacare created special low-price plans to encourage sales to low-income families.
Health insurance premiums were bound to increase following the introduction of the act. Causes are varied, some of which were unexpected and some of which exceeded predictions.
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Average monthly premiums have increased since the Affordable Care Act, and are predicted to see further increases. Source: senate.gov |
Target Market Change
Since Federal law now states that Americans must be covered by health insurance, insurance companies must provide coverage even to people with whom the company may not make money. To maintain or increase revenue after the passage of Obamacare, they must now compete for customers in much the same way that manufacturing and retail industries do: they must offer a quality product at an affordable price.
To compensate for a change in marketing structure, insurance companies in the marketplace have to experiment with premiums to find a sweet spot in which premiums will cover claims and still turn a profit for the company. It takes time, however, to collect enough data to make an informed decision with which customers can agree, and Obamacare is in the heat of the insurance battle.
Companies Are Leaving the Marketplace
Those insurance companies that have offered plans in the past that saw no return are taking them off the list of available insurance options. On average, experts predict that each state will have an average of about four companies that offer insurance through Obamacare in 2017, down by one since 2016.
As competition decreases, so does the price-control power of demand. Consumers will face health insurance premium rises each time a company or plan drops out of the Affordable Care Act.
Expensive Procedures Cost Insurance Companies Money
Because patients with diseases and injuries that require specialized care now have access to insurance that will cover their procedures, insurance companies must now bear the burden of paying for those procedures according to the plans they offer. When companies lose money on their insured customers, they often compensate by increasing health insurance premiums across the board.
The insurance system causes all insurance holders to pay for the insurance company's losses. Especially as already-ailing patients are getting the treatment and preventive care they need at the outset of Obamacare's passage, companies are reeling from the decrease in profits and desperate to move their bottom line forward. Low profits equal high premiums.
Will the Trend Continue?
Until Obamacare reaches a state in which it resembles the universal health care model, health insurance premiums will likely be in flux. Experts predict a period of rapid rises in health insurance premiums, but as patients receive the treatment they need, more patients have access to preventive care, and people find affordable insurance nationwide, health insurance premiums should balance out.
