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Understanding Health Care Premiums

Health care costs, and consequently employee health benefits costs, have been increasing at an alarming rate for nearly a decade. Avoiding rising health care costs is nearly impossible, but you can learn about why they continue to rise and what businesses across the United States are implementing to help manage costs.

To assist you, this article explains factors leading to continued rate hikes, the latest health care cost figures and what goes into the calculation of your health care premium.

Factors Leading to Increased Health Care Costs

Why are U.S. health care costs skyrocketing? Several market conditions have led to a decade of unrelenting increases. Factors that have contributed to climbing health care costs over the past decade include:
•Demographics
•Expansion of health care providers
•Consolidation of managed care companies
•Political environment and government regulation
•Increased utilization and consumer demand
•New medical technology
•Weakening of managed care system
•Health care spending and medical cost inflation
•Increased prescription drug costs

The following are two factors that are also contributing to current and projected health care costs.

An Aging Population

Because older workers are more prone to health problems, companies are seeing a rise in chronic conditions, costly medical problems and the use of prescription drugs, as well as an increase in the amount and frequency of catastrophic claims.

Poor General Health

Poorer health among Americans has also contributed to health care cost increases. Preventable risk factors such as obesity and high blood pressure have led to increases in chronic health conditions such as diabetes and heart disease—illnesses that are long term and extremely costly. Unhealthy lifestyles can be addressed through wellness programs to improve employee health and reduce costs, but most savings are seen in the long term. To combat the continuing short-term increases, employers are passing more and more costs to employees through higher deductibles, copays and out-of-pocket maximum amounts.

How Premiums are Calculated

Under current health care law, insurance companies can account for only five things when setting premiums.

Age: Although insurers aren’t permitted to use other factors like gender to determine your premiums, age can still be a factor in determinations. For example, on the ACA, a twenty-year-old person will have a lower premium because typically, people that age rarely visit a health care provider and experience lower or fewer claims.

Location: In different locations, the cost for the same procedure might vary. For example, a procedure in a metropolitan area may cost more than in a rural area, causing insurers to calculate a higher premium for a person in metro Atlanta compared to a person in Fort Valley.

Tobacco use
: People who use tobacco are more likely to experience chronic health problems, a factor insurers consider when calculating a premium. Insurers can charge up to 50% more for people in this group.

Individual vs. family enrollment: Insurers can also charge more for a plan that also covers a spouse or dependents.

Richness of coverage: Depending on your plan’s features, your premium may be higher. Factors considered include deductible, maximum out of pocket costs, copays, prescription formularies.

What can’t affect your premiums:

Today, all health care plans must cover treatment for pre-existing conditions. They also can’t charge men and women different rates for the same plan, and can’t take your current or past medical history into account.

What about group health plans?

Size and health of group: A group plan with more people shares the claims expense, a large group or a younger group may have lower premiums.

Average age of group: Group plans are based on the average age of group, so a group with a lower average age will likely have a lower monthly premium. In fact, GDA’s group health plan won’t use age bands to calculate your rates. This means that unlike in the health care marketplace or individual plans, everyone in the group—regardless of age—will pay the same premium.

An employer’s claims history
: During negotiations, an insurer will consider how much has been paid in premiums compared to how much was paid out in claims. Depending on this loss/claims ratio, rates may increase.

Type of occupation: Different occupations have different levels of risk. Your group rates might be higher depending on the general occupation of workers. For example, factory and construction workers have a higher likelihood of accidents and injuries when compared to average clerical staff. Because of the probability of frequent or costly visits, health care premiums may be higher.

Type of coverage and desired add-on benefits: Not all group coverage is the same. Including a vision plan, or lower out-of-pocket costs leads to higher premiums.

Benefits of group coverage

This year, the individual market is uncertain. As you’ve seen, insurers like Blue Cross Blue Shield have left the individual market in dozens of Georgia counties, and the average increase in Georgia’s individual plan premiums through the health care exchange is estimated at an unprecedented 57%.

If you are currently enrolled in an individual policy, your policy could be canceled. It’s likely your options will change significantly in the individual market, both for those enrolled directly through an insurer or through the ACA marketplace, so exploring a group health plan option could help you find stability.

Open enrollment for your family and staff is available through December 1, 2017.

group health plan open enrollment is here

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