Most people have a belief that receiving a claim for their medical expenses will trigger a premium increase, just like their car insurance policy or homeowner’s policy. However, people should take into account that this is not always the case, and it is a common misconception in the health insurance sector. Even before the Affordable Care Act, when health insurance in the individual market was medically underwritten, there was a provision to adjust a particular insured’s premium based on a claim. People should know that under the health care law, insurance companies take into consideration five factors, age, location, tobacco use, enrollment for only self or the entire family, and plan category to set premiums for health plans. Once a person is insured, there is no way to independently adjust the premium rate of that person based on the risk pool.
Before the Affordable Care Act, all states were flexible, excluding the five states that allowed health insurance companies to set initial rates based on the applicant’s medical history. Due to this, an applicant having pre-existing conditions was offered a plan with a higher premium than the standard rates. This was an alternative to pre-existing condition exclusions, where the pre-existing condition was not covered at all. Depending on the severity of the condition, the initial rate increase ranged from 10% to 100%.
Once the applicant is insured their future claims will not result in a rate increase specific to their plan. If their plan included an initial rate increase, then it would stay with them. So, if their plan included an initial rate increase of 25% during the underwriting process, then in future years also it would continue to be 25% higher than the standard rate. Even if the applicants later had a claim, then also their rate change for the following year would be the same, as the rate change for everyone else having the same plan in their geographical area.
Claims lead to premium rate increase but the total claims are distributed across all the policyholders in a given pool generally including other people with the same plan in the same area. Thus, if several people in the risk pool had significant claims, then premium rates increase for everyone in the year ahead. However, the rate would increase by the same percentage for everyone in that particular risk pool, irrespective of whether insurers had a large claim, a small claim, or no claim at all.
The ACA’s Reforms
The health plans purchased under the Affordable Care Act in the individual and small group market do not provide any flexibility for insurers to adjust rates depending upon the applicant’s medical history or gender. As rates vary based on age, tobacco use, and geographical area, so an applicant receiving cancer treatment will pay the same price as another perfectly healthy applicant, if they both select the same plan, live in the same area, are of the same age, and have the same tobacco status. With time both will have an equal rate of the plan, regardless of whether they receive claim with the health insurance company. Health insurance premium increases from one year to another for all, even if one applicant has filed for the claim, and one applicant has doesn’t file any claim at all. The increase in the rate is determined by the total claims for the entire risk pool, which might frustrate an applicant who doesn’t have claims in a year, but the applicant will appreciate that the rate increase is not individualized in years when they do have a major claim.
Large Group Health Premiums Depend upon their Group’s Claims History
When large employers group purchase coverage from an insurance carrier, then the insurers base the amount of the premium on the overall claims history of the employer. Here applicants should know that the premium rates do not vary from one employee to another based on medical claims, but the claims history of an employee is taken into consideration when setting that employer’s premium in the large group market. However, there is no provision for identifying an employee with high-cost claims and increasing that employee’s premium independently from the rest of the group.
People should Use but Don’t Overuse their Plan
From the above discussions, it can be said that the insured should not be afraid to file a claim when it is necessary, thinking that their health insurance premium will increase as a result. However, they should keep in mind that their claim will be a part of the total claims for their health plan, while the plan rates will be established for the coming year. Therefore, all the insured should avoid overutilization of healthcare claims, because this will benefit everyone in the risk pool.