The New Health Care Law and Insurance Premiums

Q. I thought health care reform would end ridiculous insurance price hikes, but my premium for an individual health insurance policy is going up 22 percent. Can they do that?

A. Yes, your insurer can raise premiums, and probably will as health care costs rise. The new health care law includes regulations to restrain premium hikes and protect consumers, but most of the regulations won't take effect until 2014. Meanwhile your options are to choose less expensive coverage or file a complaint with your state insurance department, depending on where you live.

Right now, about half of the states and the District of Columbia already have the power to trim or even eliminate an increase that is not justified. So far this year, hefty rate hikes were cut nearly in half in Massachusetts, rejected in Oregon and lowered in California. However, depending on where you live, premiums for individual and small group policies this year are rising as much as 25 percent.

Insurers have blamed premium increases on the cost of providing new benefits required under the new law. Federal officials counter with industry, academic and government studies showing that the changes, which take effect four years from now, are expected to raise premiums by only about 1 to 2 percent.

And new price safeguards are already in place.

The new law provides states with $250 million in "health insurance review grants" to beef up efforts to review premium increases. The first of these grants was awarded in August to 46 states. Consumers can find out how their state reviews premiums and how it will spend the grant money to improve this process by checking a new government website.

Later this year, the U.S. Department of Health and Human Services will be issuing rules requiring state or federal review of "unreasonable" premium increases. Insurers will have to justify these hikes, and this information will be posted publicly for consumers and employers.

Although health care reform doesn't limit premium increases by a certain amount, several provisions will make it more difficult for companies to raise premiums. For example:

• Starting next year, insurers will have to use at least 80 percent of the money they collect from premiums to pay for medical care — not administrative costs or profits — for those who have individual policies and at least 85 percent for those with employer-sponsored coverage.

And starting in 2014:

• Companies with a record of excessive increases may be prohibited from selling health care plans in the state health insurance exchanges, which begin operating then. If that happens, insurers could lose access to millions of potential new customers.
• Individuals and small businesses buying health insurance through the exchanges can no longer be charged higher premiums or denied coverage due to a person's health problems.
• Premiums for older men and women in most insurance plans cannot be more than three times the amount charged for a younger person. Tobacco users can be charged premiums no more than one-and-a-half times the amount charged for nonsmokers.
• People with modest or low incomes will be eligible for subsidies to reduce their health insurance premiums on plans purchased through the exchanges. Small businesses with 25 or fewer employees will receive tax credits to lower their health insurance costs.

Next year, average Medicare Advantage premiums will go down slightly, by 1 percent, according to the Centers for Medicare & Medicaid Services.

Susan Jaffe of Washington, D.C., covers health and aging issues and writes the Bulletin’s weekly column, Health Care Reform Explained: Your Questions Answered.