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 " age. Recently the CEO of MVP Health Care, a New Hampshire and Vermont HMO, talked about the fact that insurance companies are often excoriated for increasing rates faster than the standard of medical augmentation.
He relates a story of being in Washington and having a lawmaker tell him that butterfly fashion it " shocking " that ratio increases for insurance premiums would exceed the standard of medical wax. At the twin time broad 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 " rate increase standard. HHS bureaucrats - - disoriented any real world experience - - have suggested that any increase that exceeds medical elaboration might be " unreasonable. "
Self - virtuous legislators all over the country, resembling as the woman he mentioned, undervalue the " itch " of carriers who are giving out 10 - 15 % scale increases at a time when medical growth is only 3. 4 %. And of course the only examples that are EVER reported by the media are the most egregious. The better the increase, the more glaring and provocative the news data.
But Is It Always the Carriers ' Blemish?
Before we run through some math to elucidate why increases are often larger without netting the carrier any more money, take a reconnaissance at Massachusetts, where the big three carriers - - Disconsolate Crotchety, Harvard and Tufts - - have between them earned virtually nought dollars of profit for the last three years combined. At the same time Bunch Health Care, owners of Mass General Hospital and several other powerful providers racked up a $195 MILLION profit for their most recent capital year. So are the MA non - profit carriers greedy, or is the non - profit health care provider.
Does that need of earnings suggest that these carriers are inefficient? I don ' t think 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, surveillance 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 begetting is aging... and until they exit the scene America ' s average age will linger to rise... that will help.
But in the meantime let ' s stare at an example. Presume a under examination company with 100 employees at an plain health cost of $400 / month.
* 100 employees times $400 each equals $40, 000 a month.
* 50 are age 40 or older, with an familiar health system use of $600 / month, $30, 000 jive.
* 50 are 39 or younger and use only $200 / month each = $10, 000 per month language.
* Total? $40, 000 - we ' re vain no administrative cost here to walk through the quotation.
OK, that was the stage when the plan was renewed keep at year. During the year the company laid off 20 employees in that 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 glom at the numbers:
* Medical boost is 3. 4 %, so the underneath - 40 crowd saying their claims cost go from $200 to $206. 80... 3. 4 % increase, in line with medical accrual.
* 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 - - and, 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 truth 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 substantial 16. 3 % ratio increase represents is just the verisimilitude of a repulsive economy and layoffs done the way they ' ve always been done.
So listen up, Legislators, Regulators: Before you point the finger in an stab to buy votes with your righteous ill temper and certainly before you pass some mishandled law that regulates the pricing of a product that you markedly don ' t be aware, feel twice. Do some research. Find out the truth.
