Open enrollment is at the doorstep. Over the next 10 to 12 weeks, the vast majority of Americans who get health insurance through their employers will be making their selections for 2021. As a general rule, we have been conditioned to expect premium increases every year. This year will be no different. The only question is, how high will premiums go?
Plenty of uncertainty remains in the coronavirus arena. Additionally, health insurance companies reaped huge profits this summer as a result of not having to pay out for elective procedures. All of this will play into open enrollment.
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The ACAs 80/20 Rule
Consumer advocates are anxiously awaiting how the 80/20 rule imposed on health insurance carriers by the ACA will impact 2021’s premium. Dallas-based BenefitMall explains that the rule mandates insurance carriers spend at least 80% of their income on healthcare services. The percentage increases to 85% for large group policies pertaining to 50 or more employees.
In the event a carrier ends the fiscal year with a lower percentage of outlay, the difference must be returned to customers through either rebate checks or reduced rates the following year. Thus far, insurance companies have not been racing to send out rebate checks.
Insurance companies were working on 2021 rates throughout the summer. Ongoing uncertainty over the coronavirus crisis led them to dispense with rebate checks in favor of premium reductions in 2021. In short, they did not want to be left with too little cash in the event the pandemic suddenly turned worse.
Given that rebate checks did not go out en masse, we have to assume that lower rates will be in the offing for 2021. We are already seeing some signs of that. However, it is unlikely that consumers and employers will pay less in 2021 in real terms. Rather, rate hikes will not be as high as they otherwise would be.
Take New York, for example, where regulators just approved an average 4.2% rate increase for the small market. Insurers originally requested 11.4%. Last year’s approved rate increased 7.9%.
The numbers make it clear that rate increases for this particular market in New York will not be as high as they have been in previous years. But rates will still go up. Unfortunately, this could be confusing to consumers who do not understand the 80/20 rule.
Like Government Spending
One way to look at the current health insurance situation is to compare it to government spending. When politicians promise to reduce spending, they are not saying they will reduce their budget from $50 million to $45 million. Rather, they are promising to raise last year’s $50 million to $55 million instead of $60 million.
They will not actually spend less. Rather, they will spend more. Their promise to cut spending is merely a promise to not increase spending by as much as they would like to. Insurance companies are playing the same game with health insurance.
A Silver Lining
If there is a silver lining in all of this, it’s that rate increases won’t be so drastically high. At least that much is positive. Lower rate increases might even mean that some employers previously looking to cut benefits will not have to do so. We will have to wait and see.
In the meantime, do not expect employers to add to their benefits packages substantially for the coming year. Too many are hurting from the economic losses of the coronavirus crisis. Until the country fully rebounds, and that could take a few years, employers are going to have to tighten the belt all the way around.