How Are Healthcare Premiums Set?

ACA, Blog, Uncategorized

Healthcare worker pointing at a virtual dot that says 5 factors for healthcare premiums

Under the Affordable Care Act, health insurance companies can account for only five things when setting healthcare premiums. Insurance companies use these factors to anticipate the cost to cover an individual with health insurance. Some people need more coverage than others.

In this blog we are going to look at all five of the factors that contribute to the cost of health insurance premiums.

5 Factors for Health Insurance Premiums:

#1 Age:

This factor is often obvious. Older people tend to need more medical care, including more expensive services, and pose more risk to health insurance companies. For example, a 55-year-old may pay twice as much as a 30-year-old.

However, federal rules limit how much individuals pay for Affordable Care Act (ACA) plans based on age. Some states also regulate health insurance premiums, such as prohibiting insurers from adjusting premiums

“The Market Rules and Rate Review Final Rule (45 CFR Part 147) provides that each state will have age rating ratios of 3:1 using a federally established age curve, tobacco rating ratios of no more than 1.5:1 and per member rating unless a state requests ratios less than the standard, is a community rating state with uniform family tiers, or allows for averaging of enrollee premiums in the small group market.” –CMS.gov

#2 Location:

It is interesting to know that where you live can affect your healthcare costs. Here is just one example of how location, affected the average spend on healthcare:

“In 2016, per-capita medical spending in the commercial market ranged from $3,823 in Missouri to $5,173 in West Virginia—a difference of $1,350 per-capita”- Health Care Cost Institute [HCCI]

#3 Tobacco Use:

The Affordable Care Act (ACA) allowed marketplace plans to impose a surcharge on tobacco users’ premiums. The law required exchange plans to cover screening for tobacco use and cessation treatment at no cost sharing, while also allowing tobacco premium rating: the imposition of an up to 50 percent increase in premiums for tobacco users compared with non-users

What defines tobacco use? “The use of tobacco products or products four or more times per week within no longer than the past 6 months.”- CMS.gov

QUOTE "In 2021 an estimated 46 million U.S. adults (18.7%) reported currently using any tobacco product, including: Cigarettes, e-cigarettes, cigars, smokeless tobacco, and pipes

#4 Individual vs. Family Enrollment:

Insurers can charge more for a plan that also covers a spouse and/or dependents. Individual healthcare premiums and family enrollment premiums refer to the costs associated with health insurance coverage for individuals and families, respectively.

Premiums for individual plans are lower than family plans because the coverage is limited to one person. Individual plans offer flexibility for people who do not have dependents or do not need coverage for family members. Individuals can choose a plan tailored to their specific needs.

Family premiums on the other hand, are typically higher than individual premiums because they cover multiple individuals. The cost may depend on the number of family members included in the plan. Family plans provide a comprehensive solution for households with multiple members, offering coverage for spouses and dependent children. This can be more cost-effective than purchasing individual plans for each family member.

#5 Plan Categories:

There are five plan categories available through the Affordable Care Act. Depending on how you decide to split the cost of your health care, you will choose from the different plans. It is important to note that none of the levels offered through the government program are based on if you qualify for your health insurance. Rather, it is just based on your payment preference for how you split the costs of your care with your insurance provider.

  • Bronze– The plans with the lowest monthly premium and the highest copays (60% paid through the insurance carrier and 40% copay by the insured.) These plans have the highest deductibles. They are a wonderful choice for people who are only looking for help paying worst-case scenarios for a serious sickness or injury. Most routine care would be paid for out of pocket.
  • Silver– These healthcare plans offer moderate monthly premiums, and moderate costs when you need care from your preferred providers. Like bronze plans they tend to require you pay a substantial amount before your insurance takes over, but the out-of-pocket cost is still less than the bronze plan. You may qualify for extra savings with a silver plan if you qualify for cost-sharing reductions. Read more about that HERE.
  • Gold – The higher the level of the plan the higher the monthly premium. With gold level plans it costs more per month to insure the individual, but costs less when the individual needs care. The deductible is incredibly low. Meaning that your carrier starts paying earlier than for the bronze and silver level categories. For people that know they are going to need more visits to the doctor and are willing to pay more monthly, this is a great option. It also means that paying upfront means lower out of pocket costs for each visit.
  • Platinum – Platinum plans offer the highest monthly premiums with the lowest cost out of pocket for when you need care. Deductibles are minimum and your plan starts paying the earliest of the previous categories. Those who need more care benefit from plans that minimize unexpected costs from healthcare.
  • Catastrophic – People under thirty can buy catastrophic health plans. In addition, individuals who are thirty or older with a hardship exemption or affordability exemptions may purchase a catastrophic policy. Qualifications are based on Marketplace or job-based insurance being unaffordable.

When searching the Healthcare Marketplace, you will see catastrophic plans as an option If you meet the eligibility requirements. Healthcare premiums are low for catastrophic health plans, but policy holders must meet extremely high deductibles.  Once you spend the deductible amount your catastrophic plan will kick in to pay for all covered services without additional copays or coinsurance.

Your Healthcare Premium is Based on Your Income

When you pick a healthcare plan, you may save money on your monthly premium based on your income. Under the Affordable Care Act, healthcare premiums are determined by law based on income levels.  The goal is to make having healthcare coverage obtainable for all Americans. Simply, fill out an application on the Marketplace.  Instantly see if you qualify for savings on your health insurance.

You may be able to save on your monthly insurance bill with a premium tax credit HERE.

You can do a quick check now to see if your income is in the range to qualify. All Marketplace health plans cover the same essential health benefits. Insurance companies may offer more benefits, which could also affect costs.

How Can AUI Help?

Insurance can be complicated. There are so many factors that make choosing the right healthcare plan for you and your family. The categories are a way to help you sort for the type of coverage you are looking for, but that is not the entire story. You must try and find a plan that has your preferred providers in the network for instance. In addition, can you find a plan that meets your needs based on how you and the plan share costs.

Depending on the state you live in, your state may limit how much the several factors affect your premiums. Let us help you simplify the complicated when choosing the right health insurance plan. It will not cost you anything to have us help you make the right choice. You just get a team of knowledgeable brokers to help you find the right plan now and help you throughout the year with getting the most out of your policy. Contact us today to learn more.

We do more than cover small businesses and individuals with the right insurance policies and benefit plans – what motivates our team is helping you save more so you can invest more in your team, family, and goals.

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