In our first post about “Healthcare Trends for 2016” we reviewed the big trends we expect to see make meaningful strides in 2016. As interesting as wearable technology and 3D printing might be, many Americans aren’t concerned with these futuristic technologies. They’re more concerned with the costs associated with their family’s healthcare.

The cost of healthcare has long been a point of contention for American families. President Obama’s Affordable Care Act was designed to help alleviate this problem for individuals and families. But even with the passing of the new bill, the cost of healthcare is still too high for some people. Unfortunately, 2016 won’t provide financial relief to U.S. families, as the cost of healthcare is expected to rise.

Why Are Premiums Going to Increase?

To understand the increase in healthcare costs, we must first understand a health insurance company’s business model, which is actually pretty simple.

Monthly Premium – Healthcare Costs – Operating Costs = Profit

Insurance companies make their money from the pool of monthly premiums they collect. In a perfect world, an insurance company has a large number of paying customers that don’t require medical care (like young adults) to be paid, increasing profits. But that’s not the case and that’s a primary reason why your 2016 premiums will increase.

In the first year of Obamacare, nearly 12 million people signed up for health insurance. Many of these new members did not previously have health insurance. When people don’t have health insurance, they tend to put off procedures and other medical visits. When they do get health insurance, they take advantage of it. That’s what happened with the influx of new members who took advantage of their new health insurance. This caused an increase in medical bills the insurance company had to cover.

Since many of the newly insured people were not young, healthy, and low maintenance, the pool of funds to cover the medical bills was considerably smaller for insurance companies. In order to cover this imbalance in funds being paid into the pool vs. being paid out, health insurance companies are forced to increase monthly premiums.

How Much Will Your Premium Increase?

It’s impossible to say how much your individual premium will go up. Nationwide averages of premium increases do you no good. The reason being the rate of increase will vary depending on each state. For example, Minnesota residents can expect to see very high increases, ranging from 14% all the way up to 49%. On the other end of the spectrum is southern California, which expects to see a minimal increase of 1.8% for members staying with their existing plan. No matter what state you live in, expect to pay more on a monthly basis for your health insurance.

How Can You Keep Healthcare Costs Down?

It’s important to be vigilant when you’re shopping for your health insurance. This is the best way to keep your costs low. It’s easy to fall into the trap of choosing the plan with the lowest premium, but that doesn’t mean you’re choosing the best plan for you.

Here’s three tips to help you be a more informed shopper:

  1. Apply for Tax Credits or Healthcare Subsidies – Update your income to make sure that you’re getting the most available tax benefits. In the middle of 2015 there were an estimated 8.3 million people on Obamacare who were receiving premium subsidies.
  2. Be Flexible When Shopping For a Plan – Not all plans are eligible for subsidies and the government may change which plans subsidies are tied to. Or the plan you are currently on goes up while another plan goes down. Give yourself some flexibility by not tying yourself down with the same plan you used last year. Switching to a new plan might actually save you money.
  3. Apply for Medicaid or CHIP Coverage if You Have Children – Medicaid and The Children’s Health Insurance Program are both designed to provide health insurance for children at little to no cost. Even if your income is greater than Medicaid allows, your children could still qualify for CHIP.

The Affordable Care Act has done a wonderful job making health insurance available to more Americans. But it’s still not a perfect system. It’s still costly for some families and in 2016 the costs are going to increase. Make sure you’re taking advantage of all the tax breaks available to you and that you’re choosing the right plan for you and your family.

Image Courtesy of Pictures of Money

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