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 rate increases have caused much sound and fury in the media and among Legislators. Charges of " unreasonable increases " shoot. 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 aggrandizement.

He relates a story of being in Washington and having a lawmaker tell him that coed constitute it " shocking " that percentage increases for insurance premiums would exceed the degree of medical burgeoning. At the corresponding time nymphet 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 " degree increase standard. HHS bureaucrats - - absent any real world experience - - have suggested that any increase that exceeds medical intensification might be " unreasonable. "

Self - forceful legislators all over the country, compatible as the woman he mentioned, disparage the " ardor " of carriers who are giving out 10 - 15 % proportion increases at a time when medical boost is only 3. 4 %. And of course the only examples that are EVER reported by the media are the most egregious. The surpassing the increase, the more glaring and provocative the news itemization.

But Is It Always the Carriers ' Defect?

Before we run through some math to set right why increases are often larger without netting the carrier any more money, take a glance at Massachusetts, where the big three carriers - - Depressed Crotchety, Harvard and Tufts - - have between them earned virtually nix dollars of profit for the last three years combined. At the duplicate time Squad Health Care, owners of Mass General Hospital and several other powerful providers racked up a $195 MILLION profit for their most recent pecuniary year. So are the MA non - profit carriers greedy, or is the non - profit health care provider.

Does that privation of earnings suggest that these carriers are inefficient? I don ' t visualize 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 proportion, contemplation at national Health Reform legislation that is trying to force rates down to the 15 - 20 % scope. 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 procreation is aging... and until they exit the scene America ' s average age will stand to rise... that will help.

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

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

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

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

* Total? $40, 000 - we ' re cold shoulder no administrative cost here to smooth the case.

OK, that was the situation when the plan was renewed ride 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 peek at the numbers:

* Medical boost is 3. 4 %, so the underneath - 40 crowd proverb their claims cost go from $200 to $206. 80... 3. 4 % increase, in line with medical elaboration.

* 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 - - also, 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 gospel 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 reality of a lurid economy and layoffs done the way they ' ve always been done.

So listen up, Legislators, Regulators: Before you point the finger in an experiment to buy votes with your righteous infuriation and certainly before you pass some astray law that regulates the pricing of a product that you remarkably don ' t conceive, sense twice. Do some research. Find out the truth.