Why Health Insurance Costs Are Expected to Rise

October 25th 2016

Kyle Jaeger

The Obama administration confirmed on Monday that health insurance premiums under the Affordable Care Act are set to rise substantially over the next year.


On average, premiums are expected to climb 25 percent in 2017 — "[l]ooking only at states on the federal exchange," CNN Money explains. Of course, federal subsidies should offset the bulk of the costs — "[s]ome 77 percent of consumers will be able to find a plan that costs $100 or less after subsidies," CNN Money reported — but that doesn't change the fact that some Americans will be paying more to stay insured. And at the same time, there will be fewer insurers to choose from.

In response to these increased costs, some health care insurance companies are scaling back their services. About 20 percent of consumers "will only have plans from a single insurer to pick from," the Associated Press reported.

While older enrollees are considered the primary source driving up premium prices, the lack of youth enrollment is also a contributing factor, President Barack Obama said last week:

"[T]he insurance pool is smaller and gets a higher percentage of older and sicker people who are signing up because if you’re sick or you’re old, you’re more likely to say ‘Well, I’m going sign up no matter what because I know I’m going to need it.’ If you’re young and healthy like you guys, you say, ‘Oh, I’m fine. Life’s good.' So you’ve got more older and sicker people signing up — fewer younger and healthy people signing up — and that drives rates up."

The CEO of Aetna, one of the largest health insurance exchanges, warned that rising premium costs are only going to make the problem worse.

"As the rates rise, the healthier people pull out because the out-of-pocket costs aren’t worth it," Aetna CEO Mark Bertolini said at a summit held by Bloomberg on Tuesday. "What happens is the population gets sicker and sicker and sicker and sicker — the rates keep rising to try and catch it. It’s a fruitless chase, and ultimately you end up with a very bad pool of risk."

What you need to know about the current health insurance marketplace.

Thirty-nine states currently offer health insurance through the federally subsidized program, colloquially known as Obamacare. For states that have opted for the default federal health exchange, consumers can shop for plans on, and it's in those states where most major health insurers are pulling out, and also where customers are most likely to receive federal subsidies, accordingly.

Several states run their own exchanges, which allow residents to buy insurance through separate online marketplaces that abide by coverage guidelines laid out in the ACA. A handful of states also partner with the federal government to help operate their programs, according to the Kaiser Family Foundation.


Last year, premiums under the Affordable Care Act rose an average of 7.2 percent. But because those enrolled in the program were generally older and more sickly, insurance companies are pulling out and raising premium costs in select states.

If young adults — the group most likely to be uninsured, according to U.S. News & World Report — had enrolled in greater numbers, it's possible that the money they would've paid into health insurance plans would help counter the increased costs associated with older enrollees. Obamacare was designed with that intent: the healthy would offset the cost of the sickly.

In 2013, prior to the ACA rollout, PBS explained that the success of Obamacare depended on young, healthy people to offset the costs of the old and sick:

"Seven million people is the magic number the Obama administration hopes to have enrolled by the end of March. Of that, they want more than 2.5 million to be made up of young, healthy people to offset the costs of caring for the old and sick."

While the Obama administration contended that federal subsidies would help drive down the rising health insurance costs, not everyone would reap those benefits. The AP reported:

"[A]n estimated 5 million to 7 million people are either not eligible for the income-based assistance, or they buy individual policies outside of the health law's markets, where the subsidies are not available. The administration is urging the latter group to check out The spike in premiums generally does not affect the employer-provided plans that cover most workers and their families."

The news will inevitable be used as political fodder in the presidential race, as Republican presidential nominee Donald Trump continues to call for a full repeal of the president's landmark legislation. Trump campaign spokesman Jason Miller released a statement on Monday blasting Democratic presidential nominee Hillary Clinton over the report, arguing that she "wants to expand the failed program."