Health reform’s effect on premiums: What’s your clients’ prognosis?

More than 7 million Americans signed up for health insurance on the federal website, meeting the March 31, 2014 deadline for the Patient Protection and Affordable Care Act (ACA).

In addition to boosting the number of insured, the ACA set new standards for the quality of insurance coverage. Requiring consumers to purchase specific levels of coverage has renewed debate among lawmakers about the economic impact of the new law.

Health-care premiums: Who benefits?

Older people benefit. The ACA imposes restrictions on how insurers use age as a factor in setting premiums. For example, insurers can only charge three times as much for older people than younger people in a pool, compared with the limit of five times which was generally in effect prior to the law. The limitation results in a shift in cost to younger enrollees. Subsidies, which are premium tax credits, are also more generous for older rather than younger insured individuals.

Women benefit. The law prohibits charging premiums based on gender. Statistically, women consume more health care than men but will not be charged more for that coverage

Subsidies make a significant difference in premiums. Those who qualify for a subsidy would benefit. According to the Congressional Budget Office, the average tax credit available to offset premium cost is $4,700 for 2014.

Source: Manhattan Institute, 2014.

Healthier people will pay more on average. Since the ACA eliminates denial of coverage based on pre-existing conditions (guaranteed issue) and medical underwriting based on current health (community rating), on average, healthier members of the risk pool will subsidize those with poor health.

Some states will see premium decreases, but most will not. States in which health-care insurance providers were already heavily regulated will generally see premiums decrease after the implementation of the ACA. These states already had provisions in place to guarantee health-care coverage to applicants regardless of health status. In a 49-state survey, the Manhattan Institute reported that eight states (New York, Colorado, Ohio, Massachusetts, New Jersey, New Hampshire, Rhode Island, and Indiana) will see decreases in premiums while the other 41 states will see increases in average premiums. Some states could see significant increases including Nevada which is projected to see a 179% increase in premiums, and New Mexico, which will have a projected 142% increase.

Clients of all ages must plan for health-care costs, considering factors such as insurance premiums and cost inflation. In your client conversations about health care, you may also want to discuss the benefits of long-term care insurance.

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