Understanding healthcare renewal rates: A clear guide for employees

Healthcare renewal rates are the price a policyholder will pay for their health insurance coverage in the coming plan year. Renewal rates generally come through in September with a median 6% increase due to factors like inflation and changes in the healthcare marketplace (Source: Peterson-KFF Health System Tracker). A renewal rate is not a premium exactly. Instead, it represents the new premium amount in the coming plan year.

Not all premiums increase annually; some lucky consumers may find their healthcare renewal rate drops. Whether you work in benefits administration at a startup or a Fortune 500 company or if you want to understand what healthcare renewal rates are to assist your employees better, read on.

What is a health insurance renewal fee?

A premium is the monthly amount someone pays for health insurance coverage. The new premium price for the upcoming plan year is a health insurance renewal fee. This isn’t the only expense plan holders run into—they also need to pay deductibles, coinsurance, and copayments—but it is the only cost they have to pay month after month, even if they never set foot in a doctor’s office or pharmacy. Those enrolled in a Marketplace health plan may be able to lower their premium with the help of a tax credit.

As tempting as choosing a really low monthly premium may be, doing so can cost the plan holder a pretty penny if they ever need to use their health insurance coverage. Typically, the lower the premium, the higher the deductible. If someone plans to get a lot of use out of their health insurance plan, they may want to choose a higher premium to lower medical services and prescription costs.

Your state can impact when you experience a change in your premium prices. For example, most California health insurers set the annual renewal or "anniversary month" for 12 months from your initial coverage start date. That means if your company's healthcare plan coverage began on November 1st, your renewal month will typically be November each year (as long as the plan is active). However, most deductibles, out-of-pocket maximums, and other limits reset on January 1st, regardless of the renewal date. When the anniversary month occurs varies by state. In Oregon, this process kicks off in April, and in New York, you should mark your calendars for a year post-enrollment.

Do insurance rates vary by state?

In the United States, health insurance premium rates can vary significantly by state due to various factors, including local healthcare costs, state regulations, and the overall health demographics of the insured population. For example, California sees a preliminary weighted average rate increase of 9.6% for 2024, whereas other states may see different adjustments based on their unique circumstances.

Different elements, such as the availability of healthcare providers, state-mandated coverage requirements, and competitive dynamics among insurers influence each state's insurance market. As a result, residents in states like New York or Texas might experience different premium trends compared to those in California.

It’s essential for policyholders to stay informed about how rate changes in their state may impact their overall healthcare costs. By grasping these elements, you can make smarter choices about your health insurance options, including exploring alternatives like an ICHRA.

Why do insurance rates go up?

Unfortunately, insurance rate increases are something you should plan for. It’s fairly common for health insurance rates to rise over time due to factors like inflation. According to PETERSON-KFF Health System Tracker, the median proposed rate increase for ACA Marketplace in 2024 is 6% (with most plans expected to increase in price between 2% and 10%) (Source: PETERSON-KFF Health System Tracker).

These are some examples of common factors that can impact consumer healthcare premiums.

• Medical inflation: Rising prices for services, medications, and labor—particularly in hospitals and pharmaceuticals—are increasing the cost of care and driving up premiums.

• Broader economic inflation: General inflation across sectors puts upward pressure on healthcare costs, particularly in staffing and supply shortages.

• Increased utilization: In 2024, more people used healthcare services than in previous years, contributing to rising consumer costs.

• COVID-19 costs: While pandemic-related costs are declining, the commercialization of vaccines is raising per-dose costs.

• Diabetes and weight loss drugs: The rising use of costly medications like Semaglutide for weight loss is adding to pharmaceutical expenses.

• Administrative costs: Inflation-driven increases in insurers’ operational costs, such as staffing, contribute to premium hikes.

• Unwinding of Medicaid continuous enrollment: Some insurers expect an influx of higher-risk individuals into ACA plans, potentially increasing premiums.

It’s not a guarantee that health insurance spending rises year after year. For example, if you experience a drop in income or relevant household changes, you may end up spending less on a marketplace plan since plan costs are based on income and household size.

How to calculate health insurance renewal premiums?

Calculating your health insurance renewal premiums can seem like a daunting task, but it doesn't have to be. Here's a straightforward way to approach it:

• Understand the Components: Your premium is influenced by factors such as age, location, plan category, tobacco use, and the number of people on the plan. Knowing these components can help you predict changes.

• Review Last Year's Statement: Start by checking your previous year's premium for a baseline understanding. Consider any personal changes that may impact it, such as an increase in age brackets.

• Check for Adjustments: Watch for market changes, such as the Covered California Individual Market Rate Changes. Insurers often adjust premiums to reflect healthcare costs and resource usage in the area.

• Use Online Tools: Many insurance carriers offer online calculators where you can input your details to get an estimate of your renewal rate.

By taking these steps, you can better anticipate your renewal premium and explore different options for managing it effectively.

How to Save on Renewal Rates

If you are in charge of benefits administration and want your employees to save on healthcare spending, there are steps you can take to make their premiums and other healthcare expenses less pricey. Thatch is here to help you find the right healthcare coverage for your employees at a reasonable price.

If you’re looking for a new healthcare plan for your employees, you may want to consider an ICHRA (Individual Coverage Health Reimbursement Arrangement). This plan type allows businesses to reimburse employees for individual health insurance premiums—offering a flexible alternative to traditional group plans. This option is particularly appealing for companies during renewal periods, as it provides a cost-effective way to manage healthcare benefits. Thatch democratizes the process of procuring ICHRAs for your company, offering a new, more seamless, and cost-effective way to do so. Businesses of all stripes trust Thatch to help them save on healthcare spending. On average, companies who partner with us save $1,620 per year per employee. Learn more about how you can save with Thatch by scheduling a free demo.