Beginning in 2014, insurance companies must cover all pre-existing conditions for all applicants. This will cause insurance rates to rise. Why? By accepting new, unhealthy applicants, there will be an expected increase in claims. Higher claims will, in theory, be offset by premiums paid by new, healthy applicants. But rates are still likely to rise, especially for healthy individuals.

Insurance companies may only discriminate in regards to premiums based on four factors. They are age, family size, tobacco usage, and rating area. These restrictions will cause rate increases for young adults. The 3-to-1 rule states that the rate charged to a 62-yr old, for example, cannot total more than three times that of 20-yr old. A plan that currently charges a monthly premium of $140 for a 20-yr old male and $640 for a 62-yr old male will need to revise their rates. A rate revision will likely raise premiums for younger adults rather than reduce premiums for older adults.

The Act also mandates that a qualified health plan contain “essential benefits”. Essential benefits include maternity coverage. Insurers that offer maternity coverage require an additional premium to offset the higher potential claims. A popular individual plan charges a 25-yr old female $440/month for coverage that includes maternity vs $200/month for the same plan that does not. The rate for that plan for a 25-yr old male is $150/month. Since the Act will also not allow discrimination of premiums based on gender, the impact of just this one essential benefit will drive up the cost of insurance for those that either do not need or do not want maternity coverage It is possible that the Act may cause some young adults (males in particular) to DROP their insurance coverage.

Jordan J. Layer, Certified Financial Planner
Forest Park