What Drives Health Insurance Costs? An Actuary Explains

May 27, 2016
Originally published on May 27, 2016 11:15 am

Health News Florida has been reporting that Florida’s health insurance companies are asking for double-digit rate increases.

A new analysis from the American Academy of Actuaries, included in its annual look at drivers of health insurance premiums for next year, has some explanation why. 

Cori Uccello, senior health fellow with the Academy, spoke with Health News Florida and explained three of the main factors affecting costs:

1. Medical Costs

“Medical spending might be slightly higher for 2017 than in previous years, but it’s still fairly low compared to historical levels,” says Uccello. “Drug spending in particular is expected to increase faster than other medical spending.”

Insurers have been worrying publicly about the rapid increase in costs for new drugs—particularly for specialty drugs like some of the cancer therapies and hepatitis treatments that have been released in the past couple of years.

2. Changing Laws

Under the Affordable Care Act, insurance companies were offered a reinsurance program. It was a safety net in case they miscalculated how sick and expensive their customers might be. Think of it as insurance for insurers. 

“Over the past three years, the reinsurance program has lowered health insurance premiums by offsetting part of the costs of individuals who have high medical spending,” says Uccello. But, she points out, the reinsurance program has been phasing out and is slated to end after this year.

“In 2017, premiums are expected to increase about four to seven percent due to the final phase-out of the program,” says Uccello. 

3. Sick People

Part of what insurers take into consideration is just how sick or healthy their customers might be over the course of the next year. Sicker customers this year could drive costs up next year.

“So for instance, if enrollment to date has been less healthy than what insurers expected, we’d expect them to revise,” says Uccello.

She says that many plans had sicker patients than they expected, particularly in 2014. But, she adds, insurers are now a few years in to the Affordable Care Act and have better data.

You can read the full report at the American Academy of Actuaries website.

Health News Florida is also working to improve health care transparency.

You can help us untangle health care prices by checking out the PriceCheck tool, which will let you upload your prices and see what other people paid.

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