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HEALTH INSURANCE

Why you should shop around for health insurance every year

Automatically renewing your old plan could cost you big bucks.

Published: November 26, 2014 05:00 PM

Q. I bought a Michigan Blue Cross plan on HealthCare.gov last year for $143 a month. This year the same plan costs $218. Why? My income hasn’t changed—it’s still $21,600 a year.

A. Your situation is a textbook example of why we are telling people not to automatically renew their Marketplace health plans.  It can end up costing you a lot of money that you don’t need to be spending.

What’s going on behind the scenes starts with the way the Marketplace calculates your health insurance tax credit. It’s a three-step process.

Step one: The Marketplace calculates what percentage of your income you’re expected to contribute toward your health insurance. The higher your income, the bigger share you’ll have to put in. For someone at your income level, the expected contribution is a little less than 6 percent.

Step two: The Marketplace looks up the price of second-cheapest Silver plan available for a person your age living in your area. That is called the benchmark plan.

Step three: The Marketplace subtracts your expected contribution from the price of the benchmark plan. What's left is the size of your premium tax credit.

You can then take your tax credit and use it kind of like a gift certificate to put towards the cost of ANY plan sold in your location.  

In 2014, you chose the Blue Cross Premier Silver plan. It was the seventh-cheapest Silver plan, so you paid about $36 more than you would have paid for the benchmark plan.

See our complete health insurance information. To find out how to apply for, select, and use health insurance, including Medicare, visit our main health insurance page.

Fast forward to this year. In your area of Michigan, the price of the benchmark plan has actually fallen slightly from last year. That reduces the size of your tax credit a few dollars. (See Step three.)

But the most significant change is that your Premier Silver plan premium has gone up a lot. You are a year older, which raised the price a bit (premiums rise with age), but more importantly, Blue Cross increased premiums for this plan by nearly 10 percent in your area, according to Rick Notter, the company’s director of individual business. It's now the 19th-cheapest plan, not the seventh-cheapest.

The increase, Notter explained, reflects changes in “underlying medical costs” such as “prescription, hospital, and doctor costs in the area” and also how much medical care plan members use. In other words, the actuaries who work for Blue Cross Blue Shield of Michigan determined that in 2015, the company will have to collect more money if it expects to pay the health care costs of the members of this plan.

What to do? Go back to HealthCare.gov (or consult a smart insurance broker) and look at your other options. If you are willing to switch to another insurance company there are some real bargains to be had.

But if you want to stick with BCBS of Michigan, you might consider its Preferred Silver plan for a savings of more than $80 a month over renewing your current plan. Granted, the deductible is higher—$450 as opposed to $300—but it only comes into play if you go to the hospital or need a fancy brand-name drug, and your premium savings would more than cover the difference. For outpatient doctor visits you’d be paying the same low copays as you’re paying with your current plan, not subject to the deductible. And generic drugs are actually cheaper under this plan.

-- Nancy Metcalf

Submit a question to Consumer Reports' health insurance expert. Be sure to include the state you live in so we can provide a more-detailed answer.

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