UPDATED: May 5, 2014
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I have been asked on numerous occasions how my health insurance costs could be rising in 2014, when the Affordable Care Act (ObamaCare) is supposed to fix that. It is clear that there are some misconceptions floating around, one being that everyone will see lower costs. Unfortunately, this is not the case.
This is not a political rant; it is simply a statement of math and economics. Take it as you will.
The vast majority of people with health insurance coverage through their place of employment will see little change. They may see the addition of a few services, but for the most part things will stay the same. The big changes are happening on the “open market” where people who are unable to obtain insurance through an employer purchase health care coverage.
The new laws require that all heath insurance plans must cover a predetermined list of items. This might be good news for someone who wants all these services, but others will find themselves paying for items they do not need. Here are a few examples:
Maternity – The cost of having a baby is definitely expensive, but not everyone wants to do it. Every health care plan must now include maternity coverage, regardless of a woman’s need for it. If a woman does not wish to have children, or has finished having them, their policy must still include this coverage.
Prescriptions – Not everyone uses prescription drugs on a regular basis, but the new health care plans are required to include it.
Purchasing a health insurance plan today is like ordering a new car. Individuals can customize it with different add-ons like cargo racks, winches and spoilers. As of 2014, most of the choice will be taken away and it will be like purchasing one of four different cars with predetermined options and accessories. You may have absolutely no need for a winch on the front of your truck, but it comes with every purchase and is factored into the price.
The current market allows individuals and families to shop for insurance plans of all shapes and sizes that can meet their specific needs. They can add the features they want, and pass on the ones they don’t. That will cease in 2014.
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The pool of insureds is going to get an influx of people that were previously uninsurable. These individuals are higher risk, and will ultimately cost the pool more in payouts and drive up costs. Additionally, insurance companies are limited by how much they can charge higher risk customers, so they must raise the prices in some age groups (specifically younger, healthier individuals) to cover the increased costs.
(Let me reiterate, this is not a discussion about the merits of the new laws, simply why costs are going up for some.)
So to recap:
- Mandatory coverage options prevent individuals and families from getting a plan that fits their specific needs, and instead provides “blanket” coverage.
- Increased number of “high-risk” individuals being introduced to the pools raises the overall cost to the insurance companies.
Simple economics show that everyone cannot have “better coverage” and “lower costs.” Someone has to pay for it.
For an illustration, I will use my family’s scenario (current plan):
- $402 monthly premium
- No Copay
- $2,000/$4,000 deductibles (individual/family)
- $20% Coinsurance
- $6,050/$12,100 out-of-pocket maximum (individual/family)
- No maternity coverage
- No prescription coverage
Here is the closest plan available through my state’s exchange. In fact, its the same company we have now:
- $777.46 monthly premium
- $20 Copay
- $1,500/$3,000 deductibles
- 20% Coinsurance
- $6,350 / $12,700 out-of-pocket maximum
- Prescription coverage (deductible above applies)
- Maternity coverage (deductible above applies)
The benefits of the new plan:
- $1,000 lower deductible
- Prescription coverage kicks in after we meet the annual deductibles of $1,500/$3,000
- Maternity coverage (we do not plan on having any additional children)
The disadvantages of the new plan:
- $4,505.52 annual premium increase
- Copay added
- Slight increase in annual out-of-pocket maximum
We do not use very many prescriptions, so the likely hood of us benefiting from this is low. Additionally, we do not plan on having any more kids, so maternity coverage is something we no longer need. Our premiums will nearly double for what appears to be similar coverage.
These numbers are unique for me and my family, and mileage will certainly vary. There are some that will see significant benefits and others that will not. The above mentioned does not factor in subsidies for those that qualify. But for all intents and purposes, this is a net loss for my family.