How Much Are Health Insurance Premiums Going Up in 2017?

Looking Past the Alarming Headlines

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Health insurance premiums are going up in 2017, but the alarming headlines only apply to a small segment of the population. fairywong/iStock

If you've paid attention to media reports in 2016, you've likely seen alarming headlines about huge health insurance premiums increases for 2017. They've been hard to miss, and have popped up in just about every state.

But chances are, your health insurance premiums won't be rising by even close to the percentages you've seen in the headlines. Let's take a look at what you can expect, based on where you get your health insurance coverage.

The Individual Market

If you purchase your health insurance on your own—either in the exchange or directly from a health insurance carrier—you're in what's called the individual, or non-group, market. The alarming headlines about rate increases have applied almost exclusively to this market, but as of 2015, only about 7 percent of the U.S. population had coverage in the non-group market, according to a Kaiser Family Foundation analysis. Other estimates are slightly smaller, but the total individual market likely covers somewhere between 19 million and 22 million people.

For these folks, the average rate increase for 2017—before any premiums subsidies or new plan selections are taken into consideration—is about 25 percent. That's a national average, though; the rate changes vary considerably from one state to another.

Some states—like Tennessee, Oklahoma, and Minnesota—are facing average individual market rate increases of over 50 percent.

But other states—like Massachusetts, North Dakota, and Vermont—will see single-digit average rate increases in 2017.

But the average rate increase for the individual market doesn't tell the whole story. That's because it's calculated before premium subsidies are taken into account, and it also can't account for people opting to select different plans during open enrollment, potentially ending up with a smaller rate increase than they would have had if they had kept the same plan.

As of March 2016, there were nearly 9.4 million people with individual market plans who were receiving premium subsidies to offset the cost of their coverage. So nearly half of the people who have coverage in the individual market are not paying full price for it. And they will be protected from the brunt of premium hikes in 2017, because subsidies rise as premiums rise (to be clear, subsidies rise based on how much the cost of the benchmark plan rises, so some subsidy-eligible enrollees may have to switch plans to be fully protected from the rate increases).

Although the ACA subsidy structure is likely to change under a Trump Administration, nothing has changed for now, and subsidies are available for 2017 just as they have been for the previous three years.

Subsidies are not available outside the exchanges, nor are they available within the exchanges for enrollees with household income that exceeds 400 percent of the poverty level. Roughly 15 percent of exchange enrollees are not receiving subsidies (about 1.7 million people), and there are roughly 11 million people who have coverage outside the exchanges.

If you're in one of those groups, you could be facing a sharp increase in premiums in 2017, depending on where you live and what plan you have. But the Department of Health and Human Services has noted that 2.5 million people who have coverage outside the exchanges in 2016 would be eligible for subsidies if they switched to exchange plans.

So if you have an off-exchange plan, take a few minutes before open enrollment ends to compare your options in the exchange before deciding whether to renew your current plan. If you want your new plan to take effect January 1, you need to enroll by December 15. But open enrollment continues until the end of January, albeit with a later effective date if you enroll after December 15 (enrollments completed between December 16 and January 15 will have a February 1 effective date; enrollments completed between January 16 and January 31 will have a March 1 effective date).

The Employer-Sponsored Insurance Market

The headlines about huge double-digit rate hikes for 2017 do not apply to the employer-sponsored health insurance market, which is where more than 150 million nonelderly Americans get their health insurance. If you get your coverage from your employer, rest assured that the employer-sponsored market is much less volatile right now than the individual market.

When we look at approved 2017 rates for individual and small group plans, the difference is stark. Here are a few examples:

  • California: 13.2 percent increase in the individual market, versus 5.9 percent in the small group market.
  • Colorado: 20.4 percent increase in the individual market, versus 2.1 percent in the small group market.
  • Delaware: 30.1 percent increase in the individual market, versus 6.9 percent in the small group market.
  • District of Columbia: 7.27 percent increase in the individual market, versus just 0.37 in the small group market.
  • Minnesota: 50 percent to 67 percent increase in the individual market, versus small group premium changes that range from a 1 percent decrease to an 18 percent increase. 

Those rate changes are for the small group market, which in nearly every state means employers with up to 50 employees. But premium changes are also likely to be relatively modest in 2017 if you work for a larger employer.

The National Business Group on Health conducted a survey in May/June 2016 of 133 large employers who collectively provide health insurance coverage to 15 million employees and dependents. The survey results indicate that employees' premiums will increase an average of 5 percent in 2017.

The Kaiser Family Foundation conducts an analysis of employer-sponsored health insurance each year, and the trend in recent years has been very modest premium increases. For 2016, premiums increased by an average of 3 percent. For 2015, it was 4 percent, and for 2014, it was 2 percent for employee-only coverage and 3 percent for family coverage

Medicare

14 percent of the U.S. population has Medicare coverage. For the vast majority of enrollees, Medicare Part A has no premiums, and that will continue to be the case. Medicare Part B has a premium of $104.90/month for most enrollees in 2016, although about 30 percent of enrollees are paying a higher premium in 2016 (in most cases, it's $121.80/month, although enrollees with income above $85,000 pay more).

The reason most enrollees are still paying $104.90/month in 2016—instead of $121.80/month—is because there was no cost of living adjustment for Social Security in 2016. Medicare Part B premiums are deducted from Social Security checks, and there's a "hold harmless" provision that prevents net Social Security checks from declining from one year to the next.

So Medicare Part B premiums couldn't increase for about 70 percent of enrollees in 2016, because without a cost of living adjustment, that would have resulted in a lower net Social Security check. Initially, the expectation was that premiums for those folks would rise to $121.80/month in 2017, with a Social Security cost of living adjustment covering the increase so that there would be no net decrease in Social Security checks.

But the Social Security cost of living adjustment for 2017 ended up being only 0.3 percent. That's enough to allow for a very small increase in Medicare Part B premiums for all of the enrollees who are held harmless, but not enough to allow the premiums to equalize with the population that's not held harmless.

That means the premium increase necessary to cover Part B costs is once again being passed on to new enrollees, people who aren't receiving Social Security, and people with income above $85,000/year (technically the higher rates also apply to people who are dual eligible for Medicare and Medicaid, but state Medicaid programs pay the Part B premiums in that case).

The result is that for the 30 percent of Part B enrollees who aren't held harmless, the standard premium is $134/month in 2017, up from $121.80/month in 2016 (premiums are higher than the standard rate for enrollees with incomes above $85,000).

And for the 70 percent of enrollees who are protected against having lower net Social Security checks than they had in 2016, the average Part B premium is around $109/month in 2017—a little more than a $4/month increase. Since the dollar amount of the cost of living adjustment depends on the size of each person's Social Security check, the actual increase in Part B premiums will vary from person to person. 

For people who were new to Medicare in 2016 (and were thus paying $121.80/month in Part B premiums), but who are receiving Social Security checks and are therefore in the "held harmless" population for 2017, premium increases for 2017 are capped by the amount that Social Security checks rise with the cost of living adjustment. Since that's an average of a little more than $4/month, the average Part B premium for this population will end up being around $126/month. But again, the actual amount will vary from person to person, based on the dollar amount of their cost of living adjustment.

For Medicare Part D (prescription drug plan) enrollees, the Centers for Medicare and Medicaid Services (CMS) estimated that average premiums will increase slightly in 2017, to about $34/month. That's up from an average of $32.56/month in 2016. The actual premium change will depend on whether people kept their 2016 plans or switched plans during open enrollment, which ran from October 15 to December 7.

And in September 2016, CMS announced that average Medicare Advantage premiums were expected to be 4 percent lower in 2017 than they were in 2016. In 2016, the average Medicare Advantage premium is $32.59/month (in addition to Part B premiums, described above), and in 2017, CMS estimated that it would be $31.40/month.

Medicaid

Medicaid enrollment has grown substantially under the ACA, as 31 states and DC have accepted federal funding to expand their Medicaid programs. By September 2016, total Medicaid and CHIP enrollment in the U.S. had reached 73.1 million people—a 28 percent increase since late 2013.

The future of the ACA—including Medicaid expansion—is uncertain under a Trump Administration. The law is likely to be repealed and replaced, although there may be an extended time frame for that process to take place. For now, nothing has changed about Medicaid expansion under the ACA, and coverage remains available for 2017.

The majority of Medicaid enrollees do not have to pay premiums, although there are limited circumstances (in addition to unique waivers that some states have obtained to modify Medicaid expansion) under which CMS allows states to impose small premiums for participation in Medicaid. None of this is changing for 2017; the majority of Medicaid enrollees will continue to have access to coverage without premiums.  

Children are covered by Medicaid and/or the Children's Health Insurance Program (CHIP) at higher household income levels than adults in every state, but each state has different household income guidelines for eligibility. As of 2016, there were 30 states that charged premiums or enrollment fees for children covered by CHIP (and/or Medicaid, depending on how the state had structured their coverage), with average premiums varying depending on the family's household income. Few changes are expected in terms of premiums for 2017.

Summary

Your health insurance premiums may well be increasing for 2017, depending on where you get your health insurance coverage. But the media reports of spiking premiums for 2017 are mostly pertaining to the individual market and to Medicare Part B.

The headlines about rate spikes do not apply to the employer-sponsored insurance market or Medicaid, and those two sources alone cover nearly 70 percent of the American population.

And even for people with coverage in the individual market or Medicare Part B, the rate hikes will be largely mitigated for many enrollees due to premium subsidies in the exchanges and the "hold harmless" provision pertaining to Social Security checks. 

Sources:

Centers for Medicare and Medicaid Services. March 31, 2016 Effectuated Enrollment Snapshot.

Department of Health and Human Services, ASPE Data Point, October 3, 2016.

Gaba, Charles. Average Unsubsidized Individual Market Rate Hikes, Updated October 2016.

Gaba, Charles. Show Your Work: Healthcare Coverage Breakout for the Entire U.S. Population in One Chart. March 28, 2016.

Kaiser Family Foundation. Health Insurance Coverage of the Total Population, 2015. 

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