Health insurance costs have nowhere to go but up

Its open-enrollment time for employers and their employees, the time when employees must choose a health insurance plan or confirm they'll remain on their current coverage for 2015. This is also the time when folks are eligible to purchase an individual health insurance plan on HealthCare.gov or one of the various state-based exchanges. For those plans, you have until Dec. 15 to purchase your 2015 health insurance.

Regardless of where you get your health insurance, one thing is for sure: Your premiums for 2015 and the next several years are set to rise significantly.

Folks are used to the fact that health insurance costs always seem to go up. They've done so for the last 14 years, with the highest annual increase of about 14 percent and the lowest at about 3 percent. But the increases for 2015 are staggering, ranging from 20 percent to over 60 percent.

And consumers need to plan for more rate hikes over the next several years, especially those who have coverage through their employer. One of the biggest causes behind these increases is the Affordable Care Act (ACA), so called because it was supposed to provide more affordable health insurance for all.

According to a brief from the American Academy of Actuaries, several factors appear to be pushing health insurance premium up in 2015 and in future years. They include:

Risk pool composition: The ACA prohibits insurers from charging different premiums to individuals based on their health status. So, when more people with higher claims (older, sicker, etc.) enroll in new health insurance plans and don't get offset with a sufficient increase in those with fewer claims (younger, healthier, etc.), insurers project more claims and subsequently raise premiums.

Reinsurance fund reductions: The ACA created a reinsurance program to provide payments to insurance plans to help offset the costs of enrolling individuals with higher claims. Funding for this program comes from additional fees on all health insurance plans, including employer-sponsored plans. Those fees are set to decline and eventually discontinue, which points to further rate hikes.

Rising cost of medical services: This increase, the so called medical trend, results from an ever-worsening demand-supply imbalance. Beyond general inflationary pressures, an aging population is causing a rapidly growing utilization of health care, and the supply of medical services to meet this demand surge appears insufficient.

The ACA also mandated additional benefits and covered services as well extra fees charged to health insurers, which are passed down in the form of higher premiums.

Knowing that rising health insurance costs in 2015 and for the next several years is nearly a sure thing, regardless of the ACA, what can you really do about it?

In my next column, I'll lay out several strategies you can use to manage these ever-rising costs.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.