The Affordable Care Act health insurance marketplaces kicked off their second open enrollment period last week, and millions of uninsured consumers are expected to visit the federal and state exchanges over the coming three months. Those visitors will be met with an arguably overwhelming slate of health insurance options offered by major insurers including UnitedHealth Group (NYSE: UNH), WellPoint (NYSE: WLP), and Aetna (NYSE: AET). Each of these plans has a different monthly premium payment, so let's look at the five factors insurers can use when setting prices for insurance available on the federal and state health insurance exchanges.
1. Young and invincible or older and wiser?
Although insurers can't consider your current health when pricing these insurance plans, they can assume that that the older you are, the more likely you are to need health care.
According to Rite-Aid, the country's third-largest pharmacy operator, people aged 65 to 74 on average fill nearly two times the number of prescriptions every year as those aged 45 years to 54. Given the high cost of medicine, it's probably not surprising that the Centers for Medicare and Medicaid Services found that women aged 65 and older on average spend $19,110 per year on health care, while women aged 19 to 64 spend just $6,892.
Insurers are able to charge more for insurance based on the customer's age, which is why your insurance might be pricier than your younger sibling's. For example, a 50-year-old resident of New Hampshire would pay $345 per month before subsidies for the second-lowest-priced silver plan on the federal exchange, healthcare.gov, while a 35-year-old in that state would pay $236 per month.
2. City slicker or high plains drifter?
It simply costs more money to provide health care in certain areas of the country than in others. In 2009, the average person living in New York spent $8,341 on health care, while the average person in Utah spent just $5,031. The reasons costs vary so widely from state to state are complex, but factors include the amount of competition and the overall health of a state's residents. For example, Utah boasts one of the lowest obesity rates in the country, so spending on weight-related conditions there is lower than in other states.
Regardless, where you live can have a big impact on your monthly premium. For example, according to the Kaiser Family Foundation, the second-lowest monthly premium for a silver-level plan would cost $372 in New York, but just $215 in Utah.
3. Got the urge to light up?
Using tobacco will cost you. According to the U.S. surgeon general, more than 20 million Americans have died prematurely due to tobacco use since 1960. Those deaths are the result of a variety of smoking-related diseases including heart disease, lung disease, and cancer. Overall, the Centers for Disease Control and Prevention estimates that more than 16 million Americans suffer from a disease caused by smoking, and that the cost of caring for those smokers represents $133 billion in direct spending on health care every year.
Based on such numbers, insurers can price plans higher for smokers than for nonsmokers. For instance, a 50-year-old smoker in New Hampshire would pay $450 before subsidies for the second-lowest-priced silver plan -- far more than the $345 paid by his or her nonsmoking counterpart.
4. Going solo, or all in the family?
Insurers can charge more for family plans, but that doesn't necessarily mean that it's cheaper to buy plans individually. Insuring two 50-year old non-tobacco users individually would cost a combined $690 per month in New Hampshire or about the same as the $689 per month they'd be charged if they were on the same plan.
People with large families, however, will pay more than people with small families. For example, insuring two 50-year-old parents and four children in New Hampshire would cost about $1057 per month before subsidies, while a plan for those parents and two children would cost just $752 per month.
5. Silver or gold?
Plan prices will also vary considerably depending on which metal level offering is selected. Insurers offer five marketplace insurance categories: catastrophic (which is typically only available to those under 30 years old or people qualifying for a hardship exemption), bronze, silver, gold, and platinum.
The amount of health care spending paid by each plan increases as you move up from bronze toward platinum. As a result, the price for platinum plans, which on average cover 90% of health care costs, are far higher than they are for bronze plans, which pay for about 60% of health care costs.
And another thing
Although insurers can charge you more for insurance based on those five categories, many Americans will qualify for subsidy payments that could significantly reduce the amount of their monthly bill. Last year, roughly 90% of those who signed up for insurance through the federal and state exchanges had some of their monthly premium paid by the government. That said, the Supreme Court has recently agreed to weigh in on whether the ACA as it's written allows the government to make subsidy payments to people signing up for coverage on the federally run healthcare.gov exchange. The challenge doesn't threaten subsidies for people living in states that opted to set up their own health insurance exchange. However, consumers receiving subsidies and living in the 36 states relying on the healthcare.gov exchange will want to pay close attention to Washington over the coming year.