Premiums increase because the cost of health care increases for everyone. The rising cost of health care is a concern. It’s frustrating when premiums increase, but without understanding the basic concepts, people feel that the insurance industry is the problem.

When we looked at how our rates are calculated today, and how they are going to be calculated going forward, we may have a better understanding of how this works. As an example, today, health insurers rate people by age. The average cost of medical care for an older person is usually higher than the amount needed to cover the cost of a younger person. Health insurance companies vary the premiums to reflect these cost differences.

Another premium factor is the health status and the gender. Health status is whether you are healthy or not, and gender is used to determine premiums. For example, a person with health problems costs more in claims than a person who is considered healthy. Therefore, the person with the greater needs pays the greater premium because the insurance company pays the greater cost in claims. Other things that can make a difference are whether you smoke or not, and where you live.

Starting in 2014, new mandates will change the way your premium is calculated. Let’s start with age. Health insurance companies can only rate an older person three times the amount of a younger person. To accomplish this, premiums for older individuals will be reduced and premiums for younger people will be increased. The premium factors of health status and gender can no longer be a factor in calculating the premiums. This will cause drastic changes in premiums from 2013-2014. 2014 everything will be guaranteed issued. There will be no pre-existing exclusions and all carriers will be required to cover “essential health benefits”.