If you're in your late 50s or early 60s, you probably already know that buying health insurance isn't an easy process. Not only do you need to navigate the complexities of different policies, but you also must be prepared to pay big premiums.
Unfortunately, those premiums are going to be even bigger next year, especially for pre-retirees. A 60-year-old buying a standard Obamacare plan could see premiums go up as much as $4,000, although increases vary by state.
What's likely to happen to your insurance, and why are premiums going up so much? Read on to find out.
How big will your premium increase be?
AARP dug into data to determine expected premium increases for 2019 for a 60-year-old buying the second-cheapest silver-level plan sold on Obamacare's marketplaces. A silver-level plan covers around 70% of healthcare expenditures, leaving you to pay the remaining 30% out of pocket on top of paying premiums.
Research revealed that average premiums throughout the United States for a pre-retiree would increase around 16.6% in 2019 compared with 2018. A 60-year-old insurance buyer would end up paying an average of around $2,031 more in premiums.
However, where you live makes a huge impact. In Massachusetts, premiums aren't expected to go up at all, and in New Mexico, the increase is expected to be around $958. But for those in Wyoming, which saw the biggest increases, premiums are expected to rise by $4,093. Residents of Alabama, Nebraska, Oklahoma, and Tennessee all will see premium increases greater than $3,000, and residents of 27 states will see increases between $2,000 and $3,000.
Obviously, these big premium increases are likely to eat into your budget, and the higher prices may make it difficult for you to afford coverage at all.
Why are premiums going up?
Premiums are expected to go up across the board for those buying policies on the Obamacare marketplace as the Trump Administration and Congress have taken numerous steps to reduce participation in Obamacare plans. Shortening open enrollment, cutting the advertising budget for Obamacare signups, and repealing the mandate that everyone must purchase insurance coverage all mean there will be fewer healthy young people in the insurance pool to keep costs down. However, one of the biggest reasons for rising premiums is changes that make it easier for insurance buyers to purchase short-term insurance coverage.
Short-term insurance plans aren't subject to coverage requirements Obamacare imposed on standard insurance plans, such as not discriminating based on pre-existing conditions, providing essential benefits including maternity coverage and mental health services, and providing coverage with no lifetime limits. These skimpier policies can be sold much more cheaply.
Previously, a three-month cap on short-term insurance policies meant they weren't really a practical option. Now, however, federal rules are expected to change so short-term plans can be sold that last 364 days or longer and renew just like regular insurance policies. This means many people are likely to switch to short-term plans, abandoning the Obamacare exchanges. But it will be healthy young people who choose these plans, not older people who are more expensive to insure.
As many as 40% of people between the ages of 50 and 64 have a pre-existing condition that could potentially prevent them from being eligible for short-term insurance coverage or make such coverage prohibitively expensive, since insurers offering short-term plans can take pre-existing conditions into account when setting premiums. Even those who can get covered may not want these plans because they could impose coverage limitations that make them impractical for older people more likely to develop health issues.
All this means older and sicker people will be left to buy pricier Obamacare policies, with premiums rising as the young and healthy increasingly select short-term coverage instead.
What can you do as a pre-retiree?
Unfortunately, you have a limited number of options as a pre-retiree if you must buy coverage on Obamacare exchanges. First, it's important to correctly estimate your income, and if you're eligible for subsidies to buy health coverage, purchase your plan on the Obamacare exchange during open enrollment. Subsidies cap premium costs at a percentage of income, so even if your insurance is more expensive, your bill won't be bigger.
If you're very healthy, you could opt for a short-term plan if one is available -- but read the fine print carefully to find out about coverage exclusions and limitations. If the policy includes a lifetime cap on what the insurer will pay or doesn't provide coverage for care you may need, the policy isn't worth the money, no matter how cheap it seems.
Otherwise, try to obtain coverage through an employer if you can. Or if you have limited income, try to qualify for Medicaid.
If none of these options work, you simply will have to shop for coverage as carefully as possible to find an affordable plan. Remember to look at the big picture, including premiums, deductibles, maximum out-of-pocket limits, and coinsurance costs to select the coverage that will be most affordable when taking all your healthcare spending into account.
Protecting yourself from rising premiums
Unfortunately, it's likely Obamacare premiums will continue rising for the next several years as Republicans and Democrats remain divided on how to resolve issues of rising premiums for Obamacare plans. The best thing you can do is take care of your health so you don't have to use a lot of healthcare services if you can help it, and to shop carefully for insurance.
The Motley Fool has a disclosure policy.