The past few years, we have seen low price increases on medical care, with costs growing less than 4 percent a year over the past three years. Though various political groups may want to take credit, the main reason that medical inflation has slowed is the sluggish economy. People are getting laid off, cutting costs, and putting off medical care. As demand drops, so do prices.
So… why are health insurance rates increasing?
Health insurance rates have been increasing substantially, all across the country. Ten- to 20-percent rate increases are not uncommon right now. Some people are attributing this to “greedy” insurance companies, but the situation is actually not so murky.
As families look for ways to cut their costs in a slowing economy, one item that may end up on the chopping block is health insurance. People who are in good health and not using their coverage much may decide to take a chance, but people with chronic health conditions are more likely to keep their coverage.
As healthy people drop their coverage and unhealthy people retain insurance, the average health of the pool (all those covered) goes down, and the people still insured use more services. Thus, the rates increase.
What This Has to Do with The Potential Collapse of Obamacare
The next implementation of the Affordable Care Act in January of 2014 will eliminate most underwriting by insurance companies. Anyone will be able to sign up for a plan, regardless of pre-existing conditions. An increase in unhealthy people in the insured pool will put further upward pressure on premiums.
In an effort to counter this math, Obamacare is requiring all healthy people to purchase coverage. It is also requiring the youngest (and generally healthiest) applicants to pay higher premiums in order to subsidize the premiums of older policyholders. I will not be surprised to see premiums double or even triple for young men.
This system may work out (well, except for the young healthy people facing the biggest rate increases) – but only if everyone plays the game. If enough people drop out and decide not to carry coverage, then rates further increase for everyone else.
If that happens, then look out. We could have a big mess on our hands.