Why Does Health Insurance Premiums Increase Each Year?
The question is often asked why the health insurance premium should keep increasing every year while I continue to remain healthy. The simple answer is this rise is inevitable as medical costs keep increasing, doctors will expect an annual pay hike, drug prices become more expensive and such other reasons.
- How premium amounts determining?
- Formula for arriving at estimated costs
- Issues increasing the cost of medical care and health care premiums
- Health Insurance premiums continues at current trends
How premium amounts determining?
It may be worthwhile to know how premium amounts are determined by insurance companies. Each year, the insurer will study the profiles of its clients, then figures out how much that profiled patient will cost based on the average number of doctor visits the client will need, what type of illnesses the client is likely suffer from, how many times he may need a medical check up for diabetes or cholesterol or blood test and the like. The insurance company will also take into account probable surgeries, medical tests, sudden accidents, and other possible medical needs for each of its profiled patients during the process of determining the premium amount.
Formula for arriving at estimated costs
The insurer has a mathematical formula for arriving at the estimated costs – that is, individual profiles multiplied by the number of patients they expect to insure for each year. Additional amounts for miscellaneous expenses and profit margin will be added to the total. Then the insurance company does the calculations to find an average cost per patient or family – which will be the client’s annual premium. Thus, each insurance policyholder or his family will pay the premium amount, regardless of the health of the individual or family.
Issues increasing the cost of medical care and health care premiums
Notwithstanding all above factors, health
care premiums keep regularly rising and forcing businesses and
families to cut back on operations and household expenses respectively.
Experts agree that health care system have to cope up with inefficiencies,
avoidable administrative expenses, inflated prices, poor financial management,
and inappropriate dealings, and occasional fraud. These problems significantly
increase the cost of medical care and health
insurance premiums.
Even if a person is healthy, he pays a premium amount far more than the
expenses the insurer will incur towards his health care.
He may pay thousands of dollars, but need only one visit to the doctor
and/or one prescription. He has to pay a heavy premium nonetheless if
he does not want to risk footing the bill for a likely major accident
or unforeseen illness. But for more sickly persons and senior citizens
or those suffering from chronic illnesses, the health insurance premium will work out favorably. In a way, it can be said the
healthier persons also pay for the more sickly ones.
.Those who are fairly healthy, or who have access to more than one plan through their employers can exercise some control over individual costs of insurance, including the amount paid for premiums, deductibles and co-pays.
Health Insurance premiums continues at current trends
Policymakers and government officials agree that escalating health care costs need to be controlled - though they disagree on the ways to do it. Some favor price controls and strict budgets on health care spending while others believe free market competition is the best way to solve the problems. Social activists believe that if all people followed healthy lifestyles, health care costs would steeply fall as people would require less medical attention.
However, if the rate of rise in health care spending and health insurance premiums continues at current trends without any attempt to restrain, then it will severely affect employer’s bottom lines and consumer’s spending.
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