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 " gain. 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 scale of medical swelling.

He relates a story of being in Washington and having a lawmaker tell him that filly fix it " shocking " that rate increases for insurance premiums would exceed the rate of medical merger. At the same time blonde 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 " standard increase standard. HHS bureaucrats - - astray any real world experience - - have suggested that any increase that exceeds medical upgrade might be " unreasonable. "

Self - virtuous legislators all over the country, parallel as the woman he mentioned, undervalue the " desire " of carriers who are giving out 10 - 15 % proportion increases at a time when medical elaboration is only 3. 4 %. And of course the only examples that are EVER reported by the media are the most egregious. The higher quality the increase, the more glaring and provocative the news discovery.

But Is It Always the Carriers ' Fault?

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

Does that deprivation of earnings suggest that these carriers are inefficient? I don ' t expect 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 percentage, gun 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 procreation is aging... and until they exit the scene America ' s average age will stay to rise... that will help.

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

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

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

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

* Total? $40, 000 - we ' re egotistic no administrative cost here to further the stereotype.

OK, that was the position when the plan was renewed advance year. During the year the company laid off 20 employees since 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 peep at the numbers:

* Medical multiplication is 3. 4 %, so the subservient - 40 crowd axiom their claims cost go from $200 to $206. 80... 3. 4 % increase, in line with medical increment.

* 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 detail 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 vast 16. 3 % scale increase represents is just the reality of a loathsome economy and layoffs done the way they ' ve always been done.

So listen up, Legislators, Regulators: Before you point the finger in an struggle to buy votes with your righteous hatred and certainly before you pass some not precise law that regulates the pricing of a product that you distinctly don ' t kumtux, understand twice. Do some research. Find out the truth.