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How to handle a shockingly high health insurance premium increase

by Tony Novak, CPA, MBA, MT    June 25, 2014

Today’s Wall Street Journal brought the confirmation that most health insurance advisers already suspected. Medical care utilization under the new Obamacare policies is at record levels. The coming rate increases of high health insurance renewal rates for 2015 and 2016 will pose a financial shock to policyholders. But if you believe as I do that “We have to skate toward where the puck is going to be, not to where it has been” then today’s confirmation should be a call to action. How will policyholders react when presented with unprecedented premium increases? The nation’s financial advisers and health insurance enrollment firms must adjust strategies to be ready for the market response. We have to be ready to answer consumers when the shock of their premium renewal notice arrives in their mailbox.

The likely response from government will be to simply delay rather than cancel various components of health care reform. (This is the consensus opinion at this time despite increased attention over the past few days to bipartisan political efforts for repeal of some provisions). For affected individuals, this means the health insurance mandate and its related penalties. I predict that penalties will be rolled back for those affected by shock increases. The administrative actions intended to eliminate non-compliant but less expensive health plans will likely also be postponed.

Consumer response is also predictable. We know that rate increased greater than 15% (for example) result in dramatically higher turnover of insurance policies. I expect non-renewal rates of existing Obamacare policies to be about 30% or higher for 2015 and 2016. That means 2 to 3 million people will be desperate for an answer and millions more under significant financial stress due to increasing health care costs.

What can we do to prepare for unprecedented health insurance premium rate increases? Here are four possible responses:

1) Have alternative insurance and non-insurance health plans available. Private insurance exchanges like Freedom Benefits and Members Insurance Exchange are already working on an expanded product line While the coverage is not as good, at least this is an affordable and therefore “do-able” solution for those priced out of the health care market. This is especially important to working class people who live in states like Pennsylvania that have not expanded Medicaid enrollment.

2) Talk to families about isolating and managing financial risks. In states with “doctrine of necessities” laws, relatives are financially responsible for uncovered medical care. Health care providers are increasingly adept at locating and enforcing payment for care of a parent, estranged spouse or even an adult child. This specialized area of financial planning is more important than ever before.

3) Propose bold solutions. For some who will be caught in unenviable position of chronic high health care expenses without the ability to afford insurance, the best option may be to relocate to an area where they would have access to care. State control of health insurance is not going to change anytime soon, so the dramatic differences between state coverage and affordability will continue to exist for the foreseeable future.

4) Remain politically active for the long term but do so in a positive manner that is more likely to effect change. There is far too much “Obamacare bashing” that achieves nothing. Only positive forward-moving influences will be effective.

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This web site is independently owned and managed by Tony Novak operating under the trademarks "Freedom Benefits", "OnlineAdviser" and "OnlineNavigator". Opinions expressed are the sole responsibility of the author and do not represent the opinion of any other person, company or entity mentioned. Tony Novak is not an agent, broker, producer or navigator for any federal or state health insurance exchange but may provide uncompensated advice, reviews and referrals to these official resources. Novak is compensated as an accountant, adviser, affiliate consultant, marketer, reviewer, endorser, producer, lead generator or referrer to some of the commercial companies listed on this site. Information is from sources believed to be reliable but cannot be guaranteed.