It was a bright and shining promise: The President and Congressional allies passed the Patient Protection and Affordable Care Act (colloquially known as "ObamaCare") amidst assertions that the law would contain health insurance costs. Indeed, President Obama claimed that his health care plan would cause premiums to decline by some $2,500 per year per family by the end of his first term.
Instead, premiums rose by 9 percent in 2011, and another 4 percent in 2012.
Health insurance costs had been rising faster than inflation for years before 2010, according to the Kaiser Family Foundation. This was true for both employers paying group plan premiums and individuals buying their own individual and family coverage on the open market.
There was a brief period where health care costs moderated. But now they are beginning another seemingly inexorable march upward. Why the increases?
Part of the answer lies in a number of new federally-mandated coverages - described as "essential benefits." The law penalizes those who seek to get a no-frills catastrophic policy with a high deductible. And the new federal law mandates, for example, that all workplace insurance plans cover a variety of common health services.
The law also restricts insurance company''s ability to limit policy payouts or exclude certain newly mandated items - which naturally tends to cause premiums to increase: The more you demand your policy pay, the more it must necessarily collect in premiums.
For example:
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Insurance companies can no longer decline coverage to minors with pre-existing conditions. This creates an incentive for parents to skimp on premiums until after a child is sick or hurt - while children with high medical expenses remain in the risk pool.
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Lifetime benefit caps are now illegal. It used to be insurance companies would limit their losses to $2 million or $5 million or a similar amount over the lifetime of a single insured. The Affordable Care Act eliminates the cap: Insurance company loss exposure on any given individual is theoretically unlimited.
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Insurance companies must now fully cover a variety of wellness checkups and preventative care services. A hotly-contested provision of the law requires insurers to provide access to birth control and contraception services with no deductibles or co-pays.
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Insurers cannot charge women higher premiums than men, even though women of child-bearing age tend to incur higher health care costs. This would tend to decrease premiums for women, while increasing premiums for men to compensate.
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Plans must allow adult children of planned members to remain in the pool well into adulthood.
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The law also limits the ability of insurance companies to charge higher premiums on older Americans. In essence, this means that insurers must raise rates on younger and healthier people in order to subsidize coverage on older Americans. As a result, younger Americans in their 20s and 30s will likely see premiums go up.
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Congress has added a 10 percent tax on medical devices. This increases costs to the consumer and insurance company alike. Premiums must rise to compensate.
Adverse Selection
Another big potential driver of premium increases is the phenomenon of adverse selection. In health insurance, this occurs when healthy people withdraw from the pool to save on premiums. The sick, however, are more likely to stay in. Insurers must then raise rates to compensate for the sicker risk pool, which forces more healthy people out of the pool, which forces carriers to raise rates and so on.
Congress attempted to ameliorate this by imposing a requirement that individuals stay covered - and charge them a special tax if they do not buy insurance. However, the penalties are much less than health insurance premiums, for the time being. Which means that many healthy individuals are deciding there is something they would rather do with their money - especially when their premiums are artificially high to subsidize older workers'' health insurance premiums.