Why Do Health Insurance Premiums Go Up Annually?
The cost of health insurance can sometimes cause stress. The premiums seem to be going up and you might wonder if paying for health insurance is worth it. Why can premiums go up and what should you do about it?
Health insurance is an important part of looking after your health and wellbeing. However, the cost of insurance commonly increases over time. There are good reasons for this and in order to avoid paying for nothing, you should be aware of how the cost of insurance is determined and the ways in which you can control it.
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How are health insurance premiums determined?
First, it’s a good idea to know how insurance payments are calculated. The premiums are determined by the insurers’ calculations on how much a specific client will cost. These client profiles are determined based on a few factors. The influencing details include:
- The client’s gender
- The client’s age
- The client’s current or past history in terms of health
- The client’s lifestyle (drinking or smoking habits, for example)
This means that when you’re taking insurance, you’re being put in a specific client profile category which determines the cost. For instance, smokers tend to have higher insurance premiums because they are more likely to develop cancer. Similarly, older people often pay more than young due to the likelihood of ailments.
The health insurance companies regularly update and calculate these profiles based on research and findings. This helps them understand how much each person has to pay in order to cover the cost of care.
Why do premiums go up?
There are two big reasons why premiums tend to go up each year, as health insurance companies consider the correct sums. The two major reasons are:
Inflation is the main driver of healthcare premiums
The most natural reason for increasing insurance premiums is inflation. Just as the cost of food or housing goes up so does the cost of insurance. Money and its value change naturally over time and this will tend to change your insurance payments. The good news is that inflation also tends to impact your income – your salary does go up with inflation. This means that you’re not necessarily going to pay any more for your health insurance, as your income isn’t stagnant.
The discovery of illness and better treatment options
But there are other factors that influence insurance premiums and increases in premiums can be much higher than what inflation would suggest them to be. This can be partly down to the advances in technology. We’re constantly discovering new, sometimes strange, medical conditions, which can add pressure on health care providers and insurers. This means that insurers need to spend a lot more money on paying for treatment and this, in turn, will then drive up premiums.
Similarly, the modern healthcare industry is able to treat illnesses and conditions that used to be untreatable. We’re living longer and thanks to specialised medication and treatment, we can often live with difficult and complex health conditions. But this does increase the cost of healthcare and as that goes up, so does the cost of insurance. Insurers have to constantly refigure the cost of care and prepare for all sorts of eventualities.
How to best control the cost of health insurance?
Therefore, there are many reasons health insurance premiums tend to go up each year. This can be annoying and it can put a lot of pressure on your budget. However, it’s not a reason to stop having insurance. The cost of not insuring yourself and your family can end up being a lot more devastating on your health and your finances.
The good news is that you do have ways to control the costs. In fact, you should regularly compare health insurance and find a policy that fits your needs and budget – just like the insurer updates the premiums, you should update the policy you are using. When comparing health insurance, you want to focus on things like:
- The actual cost in terms of premiums and deductibles
- Any benefits or bonuses you could receive as part of the plan
- Tax benefits you could obtain
This will help you get a comprehensive idea of the cost of your insurance and how it works for you. Most providers allow you to swap policies and this is definitely worth the little hassle – you will end up saving money and getting better health insurance with advantageous benefits and wider coverage.
Insurers have valid reasons for increasing premiums and the increases aren’t always as bad as they might seem. However, you also have to stay vigilant and keep checking the options available to you – don’t just settle for a policy you have but keep checking which health insurance policy might offer the best deal for you!