Big premium hike? Blame it on the kids

Nov 3 2017

Dede Kennedy-Simington, an insurance agent in Pasadena, Calif., was "totally dismayed" when she learned recently that the premium on her family's Blue Shield PPO would rise $391 a month next year — driven largely by huge increases for her two teenage children.

The cost of insuring her 16-year-old daughter will spike 60 percent in 2018, and it will jump 38 percent for her 13-year-old son.

The price surge stems from a change in federal regulations that allows insurers to recalculate the health risks of children within a family's premium bill.

"This hurts us, but it will be a total non-starter for a lot of families," Kennedy-Simington said.

Despite the policy change for kids, they will still be considerably cheaper to cover than their parents. In Kennedy-Simington's case, her two teens account for more than half of the premium increase but less than one-third of the total 2018 premium.

Premiums are rising for a lot of reasons next year. Among the most publicized is a decision by the Trump administration to stop paying insurers for certain subsidies they provide to low-income health plan enrollees under the Affordable Care Act.

Another factor is the complicated new rule, approved last year by the Obama administration, that allows insurance companies to assign more of a family's overall premium cost to children in individual and small-group policies, starting in 2018.

It also allows insurers to charge higher rates for teens than for younger children beginning at age 15, because teenagers typically rack up bigger medical bills. Up until now, the ACA has not allowed any difference in the amount charged for children from birth to 20.

"A 15-year-old running around on his bike has more chance of something happening to him than a 7-year-old playing video games," said Ron Goldstein, CEO of Choice Administrators, an Orange, Calif.-based health insurance exchange for small businesses. "You get into high school, there's football and contact sports."

Open enrollment for 2018 coverage in the individual market, on and off the health insurance exchanges, started Wednesday.

The new age-related rule applies in most states. However, seven states — Alabama, Massachusetts, Minnesota, Mississippi, New Jersey, Oregon and Utah — plus Washington D.C., do not follow the federal rate-setting formula because they have their own.

The U.S. Department of Health and Human Services (HHS) said it revised the way premiums for people under age 21 are calculated to better reflect the cost of medical care for children. The change will also "provide a more gradual transition" to pricier adult rates, the agency said.

Under the previous ACA age calculations, turning 21 ushered in an adult rate with a steep 57.5 percent increase. Adult rates then typically increased incrementally each year to reflect the higher medical costs associated with aging, though they are eventually capped at three times the rate of a 21-year old to promote affordability for seniors.

The formula for calculating annual increases for adults older than 21 will not change.

Under the new rule, health plans can charge a one-time 20.5 percent increase next year for children 0 to 14. For kids ages 15-20, rates will increase every year, starting with a sharp hike in 2018 followed by much smaller ones after that.

For 2018, the increases range from 31.2 percent for 15-year-olds to 52.8 percent for 20-year-olds. Those hikes are already baked in to the premiums insurers have set for their 2018 offerings. And they are related only to age — there may be additional increases to cover the overall rise in medical costs.

Although the rate hikes are bigger for 15- to 20-year-olds, medical expenses for infants are actually higher, according to the nonpartisan Health Care Cost Institute in Washington, D.C. They drop after age 3, then rise again during the preteen and teenage years, according to the institute.

HHS said a single rate category for children ages 0 to 14 makes sense because it "spreads the cost of newborns, avoiding significant premium increases for families with young children."

As a result of the sharp one-time increase in 2018, a customer turning 21 the following year would face an age-related bump of only 3.1 percent rather than the 57.5 percent jump that would have applied under the old rule, according to the HHS' revised rate formula.

Some insurance agents predict the bump in charges for kids will only add to a generalized sense of anxiety about higher premiums, particularly given President Donald Trump's recent move to cut off federal payments for a key consumer subsidy, his administration's decision to shorten exchange open-enrollment periods in most states to 45 days, and Congress' failed attempts to repeal Obamacare.

"Of all years to do this … all these increases are just going to be horrifying," said Helena Ruffin, an insurance agent in Los Angeles.

In addition to a 12.3 percent average statewide premium increase, Covered California, the state's Obamacare exchange, tacked a 12.4 percent surcharge onto "silver-tier" plans — the second-least-expensive level of coverage — to offset Trump's decision to end federal payments for so-called cost-sharing reduction subsidies, which lower out-of-pocket costs for some low-income consumers.

In many states, premium hikes will be much higher next year.

Covered California spokesman James Scullary said next year's rate increases will be offset by a corresponding rise in premium tax credits, so the vast majority of consumers who qualify for those tax credits will be protected from the surcharge.

Scullary said Covered California did not have a figure to show how much the rate increase for kids contributed to the average statewide premium hike, but he said the overall impact was "very small."

But for many families — especially those with more than one child and no tax credits to absorb their rising premiums — the impact isn't small.

People like Kennedy-Simington, who buy their insurance in the individual market outside of Covered California, don't have subsidized premiums.

Neither do employees of small businesses, who are also subject to the new rates for children. One renewal notice for a small-group Health Net PPO, which covers three adults and two teenagers, shows that the kids — ages 15 and 18 — account for 60 percent of next year's total $412 premium increase.

Some health plans are sending detailed notices to enrollees affected by the rating change.

Kaiser Permanente's FAQ, for example, described 2018 as a "transition year" in which all members under 21 will experience "significant increases." (Kaiser Health News, which produces California Healthline, is not affiliated with Kaiser Permanente.)

But there may be one small silver lining: Adults may benefit, at least modestly, from spreading the rising cost of medical care across a wider age band.

The American Academy of Actuaries said in a report that raising rates for children to better reflect their costs will reduce adult rates, though by a "significantly smaller magnitude." The reductions will vary by insurer and depend on the number of children enrolled relative to the number of adults.

Kaiser Permanente said its rate hikes for children would result in "slightly lower increases to older members."

Kennedy-Simington, a past president of the Los Angeles Association of Health Underwriters, said families with children should compare all possible insurance options, and check to see if they qualify for premium tax credits through Covered California.

"The only way to get prices down is to move from one carrier to another or to downgrade," she said. "So shopping will be critical."

This story was produced by Kaiser Health News, which publishes California Healthline, an editorially independent service of the California Health Care Foundation.