Why Did My Group Health Insurance Rates Go Up So Much?

Why Did My Group Health Insurance Rates Go Up So Much?

The group health insurance industry ' s percentage increases have caused much sound and fury in the media and among Legislators. Charges of " unreasonable increases " germinate. Recently the CEO of MVP Health Care, a New Hampshire and Vermont HMO, talked about the gospel that insurance companies are often excoriated for increasing rates faster than the degree of medical increment.

He relates a story of being in Washington and having a lawmaker tell him that tomboy originate it " shocking " that proportion increases for insurance premiums would exceed the rate of medical cumulation. At the equivalent time witch was griping to him and not far away at the Department of Health and Human Services, regulators were busy trying to define the new health care law ' s " unreasonable " ratio increase standard. HHS bureaucrats - - hidden any real world experience - - have suggested that any increase that exceeds medical aggrandizement might be " unreasonable. "

Self - yielding legislators all over the country, comparable as the woman he mentioned, undervalue the " longing " of carriers who are giving out 10 - 15 % scale increases at a time when medical spread is only 3. 4 %. And of course the only examples that are EVER reported by the media are the most egregious. The prominent the increase, the more glaring and provocative the news disclosure.

But Is It Always the Carriers ' Defect?

Before we run through some math to put across why increases are often larger without netting the carrier any more money, take a inspection at Massachusetts, where the big three carriers - - Low Tetchy, Harvard and Tufts - - have between them earned virtually lowest point dollars of profit for the last three years combined. At the identical time Rig Health Care, owners of Mass General Hospital and several other powerful providers racked up a $195 MILLION profit for their most recent monetary year. So are the MA non - profit carriers greedy, or is the non - profit health care provider.

Does that absence of earnings suggest that these carriers are inefficient? I don ' t be convinced so - - these three carriers ' average cost of managing claims averages about 10. 5 % between the three of them. While they ' re adjudicating claims at that degree, speculation at national Health Reform legislation that is trying to force rates down to the 15 - 20 % range. So there ' s a valid argument that Massachusetts insurers are neither inefficient nor greedy.

Rates go up for a couple of reasons, the first of which is that every year America gets older, and older folks use more medical care. The Baby Boomer siring is aging... and until they exit the scene America ' s average age will last to rise... that will help.

But in the meantime let ' s squint at an example. Understand a controvertible company with 100 employees at an commonplace health cost of $400 / month.

* 100 employees times $400 each equals $40, 000 a month.

* 50 are age 40 or older, with an passable health system use of $600 / month, $30, 000 patter.

* 50 are 39 or younger and use only $200 / month each = $10, 000 per month vocabulary.

* Total? $40, 000 - we ' re autocratic no administrative cost here to aid the paragon.

OK, that was the spot when the plan was renewed survive year. During the year the company laid off 20 employees considering of the economy. When they laid off employees, as most employers do, they laid off the most recently hired... which also are the youngest employees.

Let ' s glad eye at the numbers:

* Medical upsurge is 3. 4 %, so the below - 40 crowd aphorism their claims cost go from $200 to $206. 80... 3. 4 % increase, in line with medical accession.

* There are now only 30 of the younger group, so claims are 30 times $206. 80 - - $6, 204. 00

* The 50 older guys also have a 3. 4 % increase, so their usage goes from $600 to $620. 40 - - further, a 3. 4 % increase = $31, 020 claims

* Total claims = $37, 224. 40 per month.

* Divided by 80 remaining employees = $465. 30 claims per month per employee.

* $465. 30 divided by $400 = a 16. 3 % increase in rates.

* And we haven ' t even allowed for the reality that each and every one of the remaining employees is a year older... and more likely to use incrementally more services.

No smoke, no mirrors... the carrier is still collecting premiums equal to the claims the group incurs. What the big 16. 3 % proportion increase represents is just the actuality of a eerie economy and layoffs done the way they ' ve always been done.

So listen up, Legislators, Regulators: Before you point the finger in an lick to buy votes with your righteous disapprobation and certainly before you pass some unsatisfactory law that regulates the pricing of a product that you distinctly don ' t cognize, feel twice. Do some research. Find out the truth.