How Do Health Insurance Rates Increase?

According to healthcare.gov, a website managed by the U.S. Department of Health and Human Services, health care premium costs doubled between 2000 and 2010, with an average 20 percent increase in individually purchased health insurance policy premiums in 2010 alone. Many factors affect the increases in health insurance premiums, but the enactment of the Affordable Care Act seeks to manage health insurance expenses for low-income and middle-class Americans who cannot afford the rising costs of health care.

Contributing Factors

• Many factors contribute to the calculation of health insurance premiums, as well as their gradual increase over time. Insurance companies must consider the expenses they expect to pay for a policy-holder over time on a case-by-case basis. Companies may deny coverage for policy-holders with pre-existing conditions that could affect profit for the insurance company. Another major factor in determining premiums is the cost of managing the health plan. This includes administrative fees, advertising expenses and profit.

Solutions

• Health insurance policy-holder can do little to avoid increasing annual premiums. However, if premiums become too expensive for a household to afford, a raise in health insurance deductibles, co-pays and coinsurance may make premiums more affordable. A deductible is the amount of money patients must pay before the health insurance company pays its portion of the medical bills. Similarly, a co-pay is the amount a patient pays out of pocket for an office visit or other pre-determined medical service. Coinsurance is the percentage of a patient's medical bills remaining to pay after the health insurance company makes a payment.

Affordable Care Act

• In 2010, congress passed the Affordable Care Act to help lower the rising costs of health insurance. By 2014, all Americans must purchase health insurance or else pay an annual fee. However, middle-class and low-income households purchasing individual private policies will receive tax credits to help them afford monthly premiums. Additionally, no one will be denied health insurance due to a pre-existing condition, and insurance companies cannot drop a policy-holder due to profit loss.

Alternatives

• As health insurance premiums rise, more and more Americans find themselves unable to afford coverage. Medicaid and the Children's Health Insurance Program, or CHIP, extend both free and low-cost health insurance coverage to applicants based on financial need. Though the federal government funds both programs, each state regulates its own Medicaid and CHIP program, setting financial eligibility guidelines that vary over state lines. Both programs offer comprehensive health coverage to those who qualify, including low-income pregnant women and children, as well as families living on incomes less than 100 percent of the federal poverty level.