Private health insurance premiums are high, rising and will cost the federal government approximately $300 billion to subsidize in 2016, according to estimates from the Congressional Budget Office and the Joint Committee on Taxation.
Here are five things to know about health insurance premiums, how much they will cost and what determines this cost, according to the CBO and JCT.
1. The CBO and JCT estimate the average premium for an employer-based plan in 2016 will total $6,400 for single person and $15,500 for families. According to the CBO, employer-based premiums are typically higher than individual coverage because they are more extensive and require less out-of-pocket payments.
2. Premiums are expected to grow about 5 percent per year on average over the next decade. This is about 2 percentage points quicker than the pace of income per capita. This means people are committing an increasingly larger portion of their paycheck toward healthcare premiums. By 2025, average employer-based insurance premiums are expected to be $10,000 for a single person and $24,000 for family coverage, according to the CBO and JCT.
3. One of the main determinants of premiums is federal subsidies, taxes and fees. Almost all premiums for employer-based coverage are excluded from taxes, which subsidizes about 30 percent of the average premium, according to the report. The government also offers tax credits for people to buy coverage on the exchanges. The subsidies reduce how much individuals have to pay for their premiums, but they also impact how much premiums cost because they incentivize healthier people to enroll in insurance, which lowers costs.
4. Federal regulations also affect premiums. For example, the individual mandate under the Affordable Care Act also encourages more healthy people to enroll, lower the costs to insurers and ultimately keeping premiums lower. However, other regulations can increase premiums, such as requirements to now cover certain healthcare services and pay 60 percent of those costs.
5. Payers themselves also determine how high premiums are. It is in the payers own benefit to keep healthcare costs down because those costs directly cut into premium revenue. This can be done by trying to manage the use of care, increasing the amount of money people pay out-of-pocket and negotiating lower rates with healthcare providers, among other strategies that can affect the end amount of the premium.
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