What's Behind the 2020 Health Insurance Premium Hikes?
Founding Father Benjamin Franklin famously said, "… in this world nothing can be said to be certain, except death and taxes." If he were alive today, he certainly would have added "and annual health insurance premium increases."
As an employer, you know that your health insurance costs will be higher every year. That's because actuaries base annual health insurance premiums on a variety of factors:
- What they predict medical claims and administrative costs will be based on the health of the insured individuals or groups.
- New federal and state laws, rules and regulations.
- The cost of developing new medications and medical technologies.
The price hikes do add up. According to the National Business Group on Health, the total cost of worker health benefits is expected to increase 5 percent in 2020, reaching a high of $15,000 per employee.
Here are some of the factors affecting rates and premiums in 2020.
Risk Pool Composition
A health insurance risk pool is a group of people whose medical costs are combined to calculate premiums. Pooling risks allows the higher costs of those who are not healthy to be offset by the relatively lower costs of those who are healthy. Usually the larger your company is, the more predictable your risks will be and the more likely your premiums will be stable.
Beyond a pool of employees, risk pool composition also is affected by the overall marketplace composition. For 2020, experts expect fewer enrollees because of policy changes, such as the elimination of the individual mandate penalty and expanding the availability of Short-Term Limited Duration Insurance (STLDI), Association Health Plans (AHPs); and Health Reimbursement Arrangements (HRAs).
Short-Term Limited Duration Insurance (STLDI) is sometimes called temporary health insurance and is designed to help bridge gaps in health care coverage during transitions. These plans are not Affordable Care Act (ACA) compliant plans.
The ACA restricted the use and duration of short-term plans. However, the Trump administration implemented a new policy in 2019 that allows anyone to apply for a short-term plan and not pay a penalty for not being an ACA-compliant. It also allows a single plan to extend up to 36 months. There are, however, nine states that don’t allow short-term plans — New York, New Jersey, Massachusetts, Rhode Island, Vermont, California, Colorado, Hawaii and Washington.
Although employers do not sponsor short-term plans, the expansion of these plans could affect the premiums you pay for group coverage. Short-term coverage generally is only available to consumers who can pass medical underwriting and is therefore much less expensive than ACA-compliant coverage. People most interested in these plans are usually those who don't need full, extensive health coverage. The exodus of younger and healthier individuals from the risk pool can increase premiums for everyone.
Also, short-term plans often are favored by employees who have lost their jobs since these plans are an affordable alternative to COBRA coverage.
Association Health Plans (AHPs) allow small businesses, including people who are self-employed, to band together by geography or industry to obtain health care coverage at the same rates as large employers.
The Trump Administration broadened the ability of AHPs to be treated as large groups, and decided to allow self-employed individuals to join AHPs, giving more small employers access to lower rates. However, the future of these plans is uncertain. A March 2019 ruling by the Washington, D.C. Circuit Court prevents AHPs from enrolling new working owners or taking advantage of the broader eligibility criteria. The Administration is appealing the ruling.
Health Reimbursement Arrangements, also called Health Reimbursement Accounts or HRAs, were designed to give employees, who have traditional health insurance, an easy, tax-advantaged way to be reimbursed for their out-of-pocket medical expenses and personal health insurance premiums. Regulatory changes, taking effect January 1, 2020, give employees the option to purchase individual market coverage with HRA funds. They also could create an HRA to be used to purchase benefits such as STLDI, dental or vision coverage. These rules only apply to employers meeting certain conditions.
Some observers are concerned that employers who have some unhealthy employees will shift them to individual plans and premiums in the individual market could increase.
Elimination of the Individual Mandate. The goal of the Affordable Care Act individual mandate was to encourage all Americans to get health insurance in a way that maintains a stable risk pool. Lower-income individuals received subsidies to purchase coverage.
However, the Tax Cuts and Jobs Act eliminated the individual mandate financial penalty beginning in 2019. Experts expect premiums to increase because unsubsidized lower-cost healthy individuals are more likely to forgo ACA coverage — which will shrink the risk pool.
The health insurance provider (HIP) fee is paid by insurers and the cost is passed along to insurance buyers. The fee was suspended in 2019. The total amount of the 2020 HIP fee is not known at this time. If there is no HIP fee moratorium in 2020, insurers may include the cost in their 2020 premiums, which may increase premiums 1 to 3 percent.
Please contact us if you have questions about the pricing of your health care plan.
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In this issue:
The High Cost of Living
Will College Savings Plans be Necessary if College is Free?
What a State-Run Retirement Plan Would Mean to Your Company
What's Behind the 2020 Health Insurance Premium Hikes?
On the Road Again — But With Insurance