In general, the premiums charged by health insurance companies represent actuarial estimates of the amount that would be required to cover three main components: (1) the expected cost of the health benefits covered under the plan, (2) the business administrative costs of operating the plan, and (3) a profit. The final premium calculation often is adjusted upward or downward to reflect several factors, such as making up for a previous financial loss. Health insurance premiums have been trending up, while the value of coverage has trended down. Available data indicate that both administrative and medical costs continue to rise, but the rate of growth in these expenses slowed between 2008 and 2009. The data also suggest that the rise in medical costs is primarily attributable to the price of services, not increased utilization.
The rise in the cost of health insurance has received considerable attention by Congress and resulted in calls for more regulation. The regulation of private health insurance has traditionally been under the jurisdiction of the states. Most states have used their regulatory authority over the business of insurance to require the filing of health insurance documents containing rate information for one or more insurance market segments or plan types. With the enactment of the Patient Protection and Affordable Care Act (P.L. 111-148, PPACA) on March 23, 2010, and subsequent amendments, the federal government will assume a role in private health insurance rate reviews by providing grants to states and requiring health insurance companies to provide justifications for proposed rate increases determined to be unreasonable. This report provides an overview of the concepts, regulation, and available public data regarding private health insurance premiums.