Behind the Numbers: Explaining Premiums Increases for Individual Market Affordable Care Act Plans

Horizon works hard to control costs. Our annual rate increases for individual policies have been among the lowest in the nation. The company earned no profits from individual policyholders in 2016 or 2017 and the rates we filed for 2018 seek to only break even.  Unfortunately, some costs are beyond our control.

Sixty percent of the rate increase individual policyholders will see in 2018 is a direct result of decisions made in Washington, DC. Depending on which plan you choose, individual policy premiums will increase between 16% and 28%.  The average increase across all individual plans is 24.3%, but three changes made by the Federal Government account for 14.7% of that average increase.

Washington’s Role in the 2018 Increase: 3 Cost Drivers

  1. Lax Enforcement of the Individual Mandate

The ACA created an individual mandate that requires everyone to have health insurance. When everyone buys health insurance, the cost of care is spread out evenly among a larger group and that lowers the cost.  When fewer people buy health insurance, the costs of care are spread among fewer people and the cost per person goes up.  While the individual mandate is still the law, Washington has made it clear that they aren’t going to enforce the mandate.  That means fewer people will buy health insurance which increases rates for those who do by 8.5%.

2.  An End to Federal Funding of Cost Sharing Reductions (CSRs)

The ACA also required insurance policies that offer subsidies that help cover deductibles, copayments, coinsurance and other out-of-pocket costs for eligible lower-income customers. In 2017, more than half of all individual purchasers in New Jersey received these CSR subsidies. Washington is no longer funding CSRs, which means that the cost of providing the subsidies will shift to policyholders. That cost increases the total average premium by 3.9%.

3.  Reinstatement of Federal Health Insurance Tax

Since 2014, health insurers have had to pay a new tax as part of the ACA. Two years ago, Congress enacted a one-time tax “holiday” to help keep premiums down and the tax wasn’t paid in 2016. The tax holiday has now ended and the tax will again be part of the premium cost increasing the average price by 2.3%.

Federal policy changes account for a 14.7% increase in the 2018 average individual premium.

Increased Claims, Rising Medical and Drug Costs, New State Mandates, and Out-of-Network Costs

Medical costs account for most of the premiums people pay. By law, health plans must spend at least 80 cents out of every $1 in premiums on medical costs.  When costs increase, the price of health insurance also goes up:

  1. Doctors, drug companies and hospitals raise prices and a national, independent research organization said that, nationally, those costs are expected to rise by 6.5%.
  2. When people go to the doctor, have tests or fill prescription more often because they have more health needs than their health insurer planned for, this higher spending leads to higher premiums.
  3. When the law requires health insurance to cover certain, specific procedures, tests or treatments those costs are passed along to all policy holders. When out-of-network providers submit surprise medical bills or inflated charges, all policyholders pay for that through higher premiums.

These higher costs account for the remaining 9.6% of the average total premium increase for 2018.

What You Can Do

While others have abandoned New Jersey’s individual market, Horizon has remained and is doing everything we can to control costs and help people obtain access to quality health care through an affordable health insurance plan.

The Federal Government needs to act and address the cost drivers that are entirely within their control.

We encourage you to contact the White House and your Federal Representatives and ask them to support actions that stabilize the individual health market and lower the cost of health insurance.   While the impact of these proposed rate increases will be partially or completely offset for the 76% of Horizon exchanged-based individual policyholders who receive Advanced Premium Tax Credits, Washington can and should act to lower costs for everyone.