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Why has my premium gone up so much?

Consumer Reports News: May 20, 2011 12:48 PM

Q. If health reform was supposed to bring prices down, why has my health-insurance premium gone up…a lot?

A. This question has come my way repeatedly, with only minor variations, ever since the Affordable Care Act became law in 2010. The short answer: insurers won’t be able to get away with this much longer.

The several pieces of health reform that will bring premiums down haven’t been fully implemented yet and until they are, insurers are raising premiums as much as they dare-and earning record profits as a result.

That’s about to change, and consumers will begin to notice it as early as this fall’s open enrollment season.

Two things are going on simultaneously.

Insurers will have to start spending more of their income on health care
. Insurers have traditionally called the portion of their premium income they spend on health care their “medical-loss ratio,” because to them a dollar spent on your health care is a loss to their profit margin.

Some plans, especially for individuals, have had medical-loss ratios as low as 55 percent, according to Sondra Roberto, a Consumer Reports attorney who works on health insurance rate issues. That means that for every dollar they collect in premiums, they spend 55 cents on health care and keep the other 45 cents for administration, marketing, and profit. But thanks to health reform, every insurance company must now have a medical-loss ratio of no less than 80 percent for their individual and small-group health plans and 85 percent for their large-group plans. If the companies don’t hit their targets, they’ll have to give rebates to customers at the end of the year.

Already we’re seeing early benefits from the new rule. In Connecticut, Aetna recently asked for an unheard of rate decrease so it can avoid having to pay rebates.

Rate hikes must be public. Starting next Sept. 1, insurers who want to raise rates by 10 percent or more will have to say so in public. Not only that, they’ll have to give details on a standardized, consumer-friendly form posted on the federal health insurance portal at

States can regulate insurance premiums however they want, and some have chosen not to block high rate increases. But even in those, consumers will be told whether regulators consider the rate increase “unreasonable” and can make buying decisions accordingly. “By shining a light on an often impenetrable world, we’re making it easier for consumers to find affordable coverage,” Kathleen Sebelius, secretary of the U.S. Department of Health and Human Services, said at press briefing on May 19.

Needless to say, we think this is a big win for consumers.

Read more of our coverage of health insurance.

Got another question for me? Ask it here.

Nancy Metcalf

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