Why Obamacare Is Pushing Up Health Insurance Premiums

Tyler Durden's picture

Now that Obamacare has been enacted, Americans across the nation are seeing their health insurance bills spiking, leading to what has been a documented slide in full-time hiring, a drop in consumer discretionary spending, not to mention stagnant and declining real wages. In short: a broad economic contraction (yes, yes, who could have possibly foreseen this).

But how is it that insurers set their prices? As Bloomberg explains, insurers are calculating what to charge for health plans in 2015, which is no simple task. Actuaries can’t easily forecast how often the millions of new Obamacare enrollees will go to a doctor. New federal rules and expensive drugs will also increase costs. Wrong guesses could wipe out profits.

Here is a quick and dirty way to understand why premiums are going up.

1. Cost of claims

This one’s easy. Insurers know what they paid in claims for the previous year and use it as a basis for the year to come.

2. Benefit changes

Past payouts are no longer a reliable predictor, though, especially with so many new Obamacare patients. And doctor visits will increase, because plans that didn’t cover maternity care and mental health must do so under the health-care law. That will bump up the premiums of some plans.

3. Rising prices

Actuaries adjust for what they call medical trend, or how fast the cost of care* is rising. From 2014 to 2015 it’s expected to rise as much as 6.8 percent. That includes changes in cost (the price of an MRI) and utilization (how many MRIs are performed).
* One tough thing to anticipate is how much new drugs will cost. Doctors are flocking to prescribe Sovaldi, a cure for hepatitis C with an $84,000 price tag. The drug cost UnitedHealth $100m in the first quarter of 2014—a sum the company called “a multiple of what we expected.”

4. Risk pool

Demographics help insurers estimate what it will cost to cover their customers. Older people typically need more care, and women of childbearing age are more expensive to insure than men*. These costs are built into plans.
* In some states, including Louisiana and Mississippi, enrollment on healthcare.gov by women accounted for almost 60% of sign-ups. That could drive up rates if insurers haven’t planned for it.

5. Provider networks

Health insurers can negotiate better rates from medical providers by promising to steer them more patients. They can also save money by avoiding expensive providers.

6. Geography

Insurers can vary premiums based on location. Medical care is more expensive in some rural areas where there are fewer doctors and in places with less competition.

7. Reinsurance

Obamacare set aside $10 billion in 2014 to help insurers cover higher-than-expected claims in the law’s first year. That pool shrinks to $6 billion in 2015. Insurance companies will make up the difference by raising prices on some plans.

8. Taxes and fees

Insurers will pay $11.3 billion in fees in 2015 to fund Obamacare programs. That’s about 3 percent of premiums, up slightly from 2014.

9. Profit and risk load

Insurers plan for 3 percent to 5 percent profit. More uncertainty may prompt them to increase their risk load, a cushion against unexpected losses.

Source: BusinessWeek

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TeamDepends's picture

Because it was designed to fail, i.e. "Cloward-Piven".

localsavage's picture

Because you can't keep adding multiple layers of beauracracy and idiots who now want to go to the Dr. for everything because they don't pay for it.

max2205's picture

They are cooked if they didn't figure the FSA growing at least 5% a year....even more next year as our doors are officially wide open to the world

localsavage's picture

They can't be honest with the unemployment numbers why would they be with those?

Vampyroteuthis infernalis's picture

I will tell you why prices are going up or i.e. why it fails, it is because Obammy and his libtard crew got his hands into it and now is part of gubimint. Hitlery wanted to do it back in the 90s, but fortunately failed. Only a true free capitalistic market will give better results.

Gaius Frakkin' Baltar's picture

This isn't rocket science (which is apparently outside of the mental grasp of the USSA now). It has something to do with a barbaric concept called supply and demand. Demand has increased for medicine now that everyone is "covered", but supply is still the same.

Pool Shark's picture



First of all; "Insurance" is the payment of a premium to a company that promises to pay you back a pre-determined amount when some unfortunate incident (which is foreseeable, though not expected) occurs.

"Insurance" is NOT PAYING FOR EXPECTED OCCURANCES WHICH ARE GUARANTEED TO OCCUR. Otherwise, it's merely 'fee for service.'

What sane agent would sell an automitive policy to a driver who promises to immediately go out and crash his car???!!!

That's why traditionally, "Health Insurance" was purchased for catastrophic, unplanned illnesses and injuries. Therefore, the premiums were relatively reasonable, and payouts relatively uncommon. Traditional "Health Insurance" didn't cover every office visit for a sniffle or sneeze; and if it did, there were significant co-pays or out-of-pocket expenses.

The problem with Obamacare (and most modern "Health Insurance") is that consumers have demanded it cover ANYTHING, ANYTIME, including "free" Viagra, contraception, ambulance rides to the doctor for a hangnail, etc.

I realize there are many other problems with modern healthcare; but expecting that all ANTICIPATED AND EXPECTED costs be covered for everyone, all the time, whenever they feel like it is akin to opening a giant all-you-can-eat buffet, taxing the populace at large for it, then allowing everyone to eat all they want. After the first few morbidly-obese patrons empty all the steam tables of food, expect the costs to go up...


Boris Alatovkrap's picture

Please patiently to wait while Boris is assemble facial expression of shock and concern that Amerika is experience health care cost overrun. Welcome to socialism!

COSMOS's picture

LOL with mandatory health insurance premiums running hundreds of dollars a month, where does the average American have money to pay for food?  Guess they will just have to check themselves into the hospitals to get food after they haven't eaten for a few days, or maybe they can end up in prison for driving without car insurance, they say prison food is better than hospital food LOL

philipat's picture

The Article doesn't even mention the most important reason for cost increases, which is "Adverse selection", whereby those with existing conditions and those who are the most sick and/or vulnerable are the first to enroll.

We still don't have a clear breakdown of numbers (In itself remarkable for such legislation) but my guess is that numbers enrolled are significantly smaller thatn originally declared because so many left the insurance in the basket and never got round to paying. I also suspect that, in this same context, the numbers of younger/healthier folks who actually enrolled is significantly lower than declared also.

DanDaley's picture

Perfect explanation!! 

Postal's picture

I'm sure 80% of the time what you say is true; however, let me offer this one bit of devil's advocate anecdotal evidence: I had a boss one time who demanded that we go to a doctor if we called in sick. It didn't matter why. We had to have a note that we actually were under a doctor's care. He couldn't trust us to actually, you know, "get plenty of rest, drink plenty of fluids, call me tomorrow."

But he still trusted me enough that I had God-mode rights on the MS Exchange server. *shrugs* Go figure.

Healthcare is a fucking mess becauuse Americans expect "somebody else" to pay for it: Employers want healthy workers, but don't want to pay for healthy working conditions. Employees want cheeseburgers and fries and for the employer to pay them for the rest of their lives if they trip over a crack in the sidewalk.

That anyone has to "explain" why healthcare is expensive in the first place is the problem.

floyd084's picture

Rember how many lines of code the website took?  The whole thing is designed to fail, the only purpose of it was to give obamas friends a hand out. Charge ridiculous amounts of money to build a system that will eventually fail anyway, who cares if it doesn't work? They still get paid for building it.  Now if I could just get the tax payers to buy the twigs that fall in my yard for $5000 a twig.

All Risk No Reward's picture

"Fail" as defined by "maximize profits and control for a Debt Money Power corporate front?"

Yup, total failure.

The problem is that "fail" fails to convey what is **really** going on here.

Even my correction falls short...  for I didn't identify the nuances of "control" from the perspective of the the Debt Money Tyrants.

Let me just suggest that they are eugenics obsessed.  Interested parties can do the research from here.

junction's picture

Mostly boring Captain Obvious type comments here, with some tossing in expletives to make the posters feel important.  Some comments are okay because they include real information, like how your health insurance premium went up 30%.  That increase is a warm-up pitch.  Not a joke in the lot.


Doctor phoning patient: "I just got your test results back.  They are terrible.  You don't have long to live.  You have 20. . . "  Suddenly, the phone signal breaks.

Patient, speaking frantically:  "What do you mean?  Do I have 20 months to live, 20 days. . ."

Phone signal suddenly returns.

Doctor: "14, 13, 12. . ."


MayIMommaDogFace2theBananaPatch's picture

But - but -- I thought it was supposed to bring costs down?!?!?! </sarc>

Escrava Isaura's picture

MayIMommaDogFac... "I thought it was supposed to bring costs down?!?!?! </sarc>"

Close! Two of the objectives of Obamacare are to:

a) Bring the buying power of the American consumer down

b) As well as to try to make manufacturing in the US more ‘globally’ competitive

Seasmoke's picture

It's a fucking tax !!! Meant to bring you down !!!

gbresnahan's picture

As I've always said about it.. we're definitely paying the tax, and we might even get some healthcare out of it.

Plus, now that nearly everybody is covered, there is no incentive to take care of yourself.  For any little cut, scratch, bump, or cough, everyone will be rushing to the ER - on everyone else's dime.

The Most Interesting Frog in the World's picture

Americans are fat. Maybe that is why healthcare is so expensive.

MayIMommaDogFace2theBananaPatch's picture

It is expensive in the extreme because it is a protected fucking racket with layer upon layer of paper-pushing bullshit that has nothing to do with HealthCare.

The "fat people meme" is such an obvious divide and conquer angle.  And before try you try to hurl some fat slur at me: I'm 6'2" 165# -- I'm skinny.

ATM's picture

It's expensive because there is no interested consumer who is spending their own money for health care and shopping for services.

What out employer paid health care really has done is create a free national supermarket where everyone wants lobsters and steak and '82 Bordeaux because dammit it, it's free!

The suppliers charge what they can because they can. There is no market for health care. It's a cluster fuck of a mess that causes prices to be high but care is terrific too. Just wait until we ration care, lower costs to thrird world levels and all have to line up to get a knee replaced in 17 months or wait 100 days for a cancer operation.

We will get what we deserve, a health care system that is designed to teach you to die already. It's your civic duty.

The Most Interesting Frog in the World's picture

Many good comments here and great points by all. There are several reasons why healthcare costs what it does. I was just trying to bring a personal responsibility angle to the subject matter.

Panafrican Funktron Robot's picture

People respond to incentives.  Appeals to personal responsibility are not incentives.  

Panafrican Funktron Robot's picture

There are a lot of fat drunks that smoke in the UK.  Why is their health care so much cheaper on a per-person combined basis?  I can assure you that a healthy lifestyle is not what I would describe the average UK resident as having.  










Now ask who wrote major provisions and revisions of the PPACA (Obamacare).  Hint:  It wasn't Barry Choomwagon.  The PPACA was designed to maximize profit for the entities that paid for the legislation.  Explaining "why are the premiums going up" is missing the point to a large degree, same as "why are the banks making oodles of money and not lending" and trying to analyze that disaster of a financial reform bill we know as Dodd-Frank in order to find the answer.  The banks wrote the bill in order to maximize their profit.  

Greenskeeper_Carl's picture

Not sure why that got so many down votes. It's true. Mexico might hold the title as the most obese nation right now, but just cuz we aren't #1 doesn't mean we aren't fat. Most Americans eat processed food that isn't even real food, just a bunch of chemicals disguised as food, and we use high fructose GMO corn syrup in everything instead of real sugar, and we are incredibly lazy to boot. The guy above me is also correct, but if people weren't going to the doctor all the time with self-inflicted obesity related problems there wouldn't be nearly as many overly priced doctor bills to pay in the first place.

The Most Interesting Frog in the World's picture

Well stated. I'm convinced ZH readers could fix healthcare in under 30 days!

deflator's picture

 It is a tax plain and simple...once the steep penalties start kicking in next year and especially following years, those that were previously uninsured will pay a couple hundred a month extra to be "insured". Of course the deductable and copay will render most of the previously uninsured still uninsured.

lunaticfringe's picture

You will still be far better off paying the enhanced 2.5% penalty rather than 6k in premiums with a 2k deductible. Even with the enhanced penalties the cost of this shit is still off the charts and doesn't pencil.

Chaos_Theory's picture

Almost if by design...gov gets you to pony up 2.5% of your income for nothing.  Brilliant (evil...but brilliant).

viator's picture

Informed health care experts expect costs to skyrocket.

"Full implementation of the Affordable Care Act’s (ACA) national health insurance expansion could result in many more discretionary surgical procedures in the next few years based on how utilization changed after an earlier insurance reform in Massachusetts."

Of course the experts are baffled. When you give away or subsidize a good people want more of it. How can that be?



Pure Evil's picture

I don't know..............maybe we should ask all the idiots that got free Obama phones.

socalbeach's picture

For those previously uninsured, those in need of medical care or high-income people will sign up, those not in need and non-rich won't (if you make enough $, the penalty would be larger than the premium, so you might as well get insurance).  There weren't that many uninsured wealthy people, so basically the ones who need medical care will join, healthy ones won't. That will increase payouts, so premiums have to rise. Shouldn't that be a factor?

NoPension's picture

When you can get coverage, after the event, it's not insurance. I don't know what you call it, make up a word, it's so fucking stupid. But it's not insurance.
Now, I don't want to be accused of defending insurance practices, it's one of the biggest rackets out there. But this is not insurance.
Soon, our Hero, Mr.Zero, will ride to the rescue, and mandate we cut out the middleman..... Go to single payer... The left's wet dream ( why, I don't know?)
The Left is bound and determined to get the country to agree to a mutuall suicide pact. WTF is wrong with these people. I can tell you a lefty's position, 99.9% of the time- if it's fucked up, backwards,gay,mutually suicidal, antiethical , devoid of logic and generally against the norms of accepted social behavior, they are ALL for it.
Something had to kill or eliminate these fucking people in the past, else humanity would never have survived to this point.

lunaticfringe's picture

My friend Billy says this. TG for abortions or we'd have another 50 million of em. Hard to argue.

NoDebt's picture

I doubt we could multiply fast enough to outrun what's flooding over the borders.  Add 'em both together and what do you have?  Utopia, of course.

TBT or not TBT's picture

Weirdly, the same sociopaths are big big supporters of Planned Parenthood, the abortion mill of the very minorities and poor who are meant to stay on the sociopaths voting rolls.  

WhyWait's picture

NoPension, I get from your name where you're coming from.  We're all getting fucked over, in so many ways.

But let's think about Single Payer a bit.  The US is practically the only industrialized nation that doesn't at least have Single Payer.  In fact we do have it, it's called Medicare, which I can tell you from being on it is a whole lot simpler, cleaner and easier to get care through than any private plan I was ever on - in spite of Congress passing laws to screw it up (but that's another story).  

Not having at least Single Payer is the central reason why we are paying twice as much per person for health care in the US as the next closest country, Canada, while our health outcomes are terrible and getting worse.

Single Payer would be really good for jobs also.  By taking health coverage off the employers' plates and paying for it through a tax - Canada uses a national sales tax but we could use a payroll tax, an income tax surcharge, whatever - the employers would no longer have to calculate whether they can afford the insurance cost of hiring someone.

Before you flip over the T-word, consider: do you really care so much about who takes the money from your pocket that you'd rather pay $1200 to a private insurer - who then fights with you and your doctor over what care you can have - than $500 into a government fund?  

Greenskeeper_Carl's picture

The problem with that is it uses the force of govt to make people pay for things they may not want or need, and to pay for the healthcare of others. It removes personal responsibility. Medicare/Medicare are two of the big reasons we have over 200T in unfunded liabilities. This would just add to it. Not sure how much more you think the average person can afford to pay in taxes, but it ain't enough to cover this.

WhyWait's picture

As a Medicare patient my physician and I play detective trying to find underlying problems, exploring lifestyle changes etc.  So different from care I was used to where they prescribed for a symptom and shoved me out the door. This has led to my taking more responsibility not less.

Let's stop beiong hung up on the problem of someone getting something we didn't at our expense.  If we're reading ZH we know we have much bigger problems to deal with, like the owners and managers of global corporations who are acting like gangsters and plundering the whole world economy.

TBT or not TBT's picture

Actually, entitlements are going to grow to consume the entire GDP rather soon, which of course will not happen.  The entitlements will not be delivered, among other epic disasters that anyone with a conscience should be acting and voting to avoid.   The incentives we have set up, voting free stuff for ourselves from the public treasury, will very predictably abd mechanically destroy our civilisation.   

HastaLaVictoriaSiempre's picture

Medicare is only 25% funded by the contributions of the insurees. The rest comes from your taxes and printing dollars. There is no "fund" as one would expect for a private insurer, so if like me you are in your late thirties there is no guarantee the hefty amount confiscated from your paycheck every month will result in (half decent) coverage when retirement comes. I'd rather save that money myself or establish a contract with a third party than rely on .gov.


WhyWait's picture

You are setting yourself a false choice, letting the insurance companies and their schills enroll you in "Grinchthink".

What about Medicare right now, for you and your children?  If the taxes are set to cover payouts on a real time basis then it doesn't depend on a fund whose value could get wiped out.  So what if it's covered by taxes.  Think of them as premiums - does that help?

Sure, you will still have to pay for the care for old folk, the chronically ill, children with genetic disorders, etc.  The main point is over a lifetime you get over twice as much for your dollar, and better care too because not fractured and distorted by insurance companies trying to avoid paying what the doctor orders and doctors squandering their precious time arguing with clerks and making decisions based on what this or that policy will pay for.  And an environment full of sick and sometimes contageous people who haven't been taken care of because of bad or no insurance.

The big problem with Single Payer is it cuts out a very lucrative parasitic financial industry.  How much does that bother you?

HastaLaVictoriaSiempre's picture

Single Payer is the government, and the government mismanages most things it touches - that bothers me. The taxes are NOT "set to cover payouts on a real time basis"; this country is printing money and has borrowed massively, largely to cover healthcare. Medicare is a ponzi scheme, completely and utterly unsustainable. My elders payed artificially cheap Medicare "premiums" and now I should pony up to cover their 200k$ immune modulator cancer treatment that will add 4 months to their lives? This, knowing that it is mathematically impossible for the same system to provide me with the same benefits 30 years from now?


Dingleberry's picture

Defensive medicine costs more than what the insurance companies make. Lawsuits, malpractice insurance, endless tests, etc. etc. etc.  but you NEVER hear of this even though the other countries that socialists say we should emulate do not allow lotto-style lawsuits.


But I am not surprised. The trial lawyers are usually the biggest $$ donors to the democrats.

Healthcare would fix itself if it were market based. We have so many people removed from the consequences of their actions that the system is cracking under its own weight, PUN INTENDED.

Eat like a pig. Drink like a fish. Don't worry....medicare will pay for it.

You liberals want to do it like the europeans? Fine. Let's go all in. 

That means getting rid of lawyers. That means wait lists (which is a backdoor way of penalizing the sick).

Think that will ever happen? That's what I thought.

sunnyside's picture

This above is the adult conversation that we still refuse to have.

- 1.  There are only so many dollars to go around.  The printing will end.

- 2.  Rationing has to happen for any public service.

WhyWait's picture

Hasta, If we are going to confront the banksters we have to stop buying their bullshit.

Social Security may arguably be a Ponzi scheme, or it may be in trouble because Congress has borrowed and spent most of the Social Security fund and the interest on the investments has plummeted.  Medicare on the other hand is basically a simple transfer payment system, will be good as long as we support it, and if everyone is on it will not be at risk from a political backlash.  Sure the young folk may get crazy as the economy tanks and throw granma under the bus, but they won't do that to themselves or their own children.


HastaLaVictoriaSiempre's picture

Wall Street is not the root of the problem here. You have a populace that wants only the most technologically advanced care in the world, right now with no waiting lines, at a fraction of the real cost and win the lotto when a medical error occurs. It's like a driver who wants a Cadillac but can only afford a Toyota. There is something called "unfunded liabilities", which for Medicare means the US gov promised tens on trillions (with a T) in care for which there is no future revenue booked, ie no expected taxes to cover the expenditures. Right now printing supports the system, which consists in taxing the rest of the world so everyone here can drive a Cadillac; this is the "simple transfer payment system" you are referring to and it is not sustainable.


TBT or not TBT's picture

Medicare is a formidable vote buying, government dependency generating machine that is growing out of proportion to physical reality itself.  It will turn to shit.  What cannot continue forever will stop.