This past weekend marked the kickoff of open enrollment for the Affordable Care Act, best known by its shorthand name, Obamacare.
As you might imagine, optimism, skepticism, and finger-crossing are at a heightened level right now considering that the memory of last year's nightmarish start to open enrollment is still very fresh in consumers' minds. Out is CGI Group (NYSE:GIB), previously the primary architect of the federally run Healthcare.gov, and in is Accenture (NYSE:ACN), which has been tasked not only with ensuring that Healthcare.gov has been properly tested prior to this year's open enrollment period, but with engineering a system that's prepared for the entry of small and large businesses into the exchanges.
For millions of consumers it's the time of the year where they have to think about whether they want to reenroll with the same health-benefits provider as they had in 2014, switch insurers entirely, or for those who remained uninsured throughout 2014, to decide which provider they're going to go with in 2015.
One thing consumers are bound to find if they do a little poking around is that Obamacare premium costs can vary wildly from state to state, and occasionally even within a state. The reason for these huge disparities in price may not always seem obvious. So, with that in mind, let's take a closer look at the three factors that are most often responsible for the wide swings in premium prices between states and cities (aside from the actual price difference between the plan tiers themselves).
First off, Obamacare premiums will differ based on where you live within the country. Health benefit providers adjust your premium based on your ease of access to healthcare. The idea being that if you live in a populous area you are a) likelier to go visit your doctor more often for preventative care, and b) more likely to be able to get to a hospital should a medical emergency arise. This is why the lowest-cost, non-subsidized silver plan in a non-populous state like Wyoming costs $440 per month in 2015, while a resident in Allegheny County in Pennsylvania, a much more populated area, can purchase the lowest-cost silver plan for $170 per month.
2. Provider competitiveness
Secondly, the number of competing insurers in a given state and/or city will determine where premium prices head. The same rules of supply and demand that you'd see with any other good on a grocery store shelf are at play in the health insurance marketplace. The fewer of a product that's available, the more the pendulum swings toward the insurer having greater pricing power. In certain states there are just two insurers competing against one another, leaving consumers with few options and often high premium prices. Conversely, states that are more populous tend to have a higher number of health provider participants, which can lead to more competitive pricing aimed at luring in new members.
According to the Department of Health and Human Services, the number of insurers participating in the health exchanges is up about 25% to 315 in 2015 from 252 last year. This figure was as of late September and may have increased. UnitedHealth Group (NYSE:UNH), for example, boosted the number of states it's choosing to sell plans in from just four in 2014 to 24 in 2015. As this figure increases the consumer should see smaller premium increases in future years.
3. Your unique characteristics
Finally, while insurers can no longer exclude people with preexisting conditions from purchasing health insurance, they can still adjust your premium based on a small range of personal factors. These include your age, whether or not you use tobacco products, the size of your family, and the aforementioned "geographic location."
As you might imagine, younger people are often much healthier than older adults, and therefore pay a much smaller non-subsidized premium. While it's not written in stone, the older you are, the more you'll pay for health insurance on a non-subsidized basis.
Similarly, those who admit to tobacco use can be charged up to 50% more for their health insurance than their non-using peers. Tobacco use has been scientifically linked to a handful of serious diseases that are not only devastating to the user and their families, but can be quite costly to the insurer. Therefore, insurers reward those who choose not to use tobacco with lower rates.
Lastly, insurers will often charge consumers more that are piggybacking a spouse or other dependents on their healthcare plan.
Keep this in mind
As you peruse the health exchanges over the coming weeks, keep in mind that there are a number of ways consumers can potentially save money on their health insurance. This includes applying for financial assistance since 87% of people that enrolled via the online exchanges last year qualified for a subsidy; shopping around to get the best value (most plan prices have changed in 2015); and perhaps even moving into a higher tier such as a gold or platinum plan if you frequent your doctor's office since it'll result in fewer out-of-pocket costs.
Also, keep in mind that should you choose not to purchase health insurance in 2015, the penalty for noncompliance with the individual mandate has jumped to the greater of $325 or 2% of your annual income.