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 ratio increases have caused much sound and fury in the media and among Legislators. Charges of " unreasonable increases " rise. 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 ratio of medical increase.

He relates a story of being in Washington and having a lawmaker tell him that doll originate it " shocking " that standard increases for insurance premiums would exceed the proportion of medical upsurge. At the same time virgin 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 - - gone astray any real world experience - - have suggested that any increase that exceeds medical development might be " unreasonable. "

Self - powerhouse legislators all over the country, allied as the woman he mentioned, disparage the " appetite " of carriers who are giving out 10 - 15 % percentage increases at a time when medical expansion 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 cognizance.

But Is It Always the Carriers ' Defect?

Before we run through some math to excuse why increases are often larger without netting the carrier any more money, take a viewing at Massachusetts, where the big three carriers - - Unhappy Irritable, Harvard and Tufts - - have between them earned virtually shutout dollars of profit for the last three years combined. At the corresponding time Bunch Health Care, owners of Mass General Hospital and several other powerful providers racked up a $195 MILLION profit for their most recent financial 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 suppose 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 standard, peekaboo at national Health Reform legislation that is trying to force rates down to the 15 - 20 % area. 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 generation 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 double o at an example. Assume a under examination company with 100 employees at an natural health cost of $400 / month.

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

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

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

* Total? $40, 000 - we ' re cheeky no administrative cost here to help the object.

OK, that was the bearings when the plan was renewed sustain year. During the year the company laid off 20 employees seeing 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 the eye at the numbers:

* Medical increase 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 cumulation.

* 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 - - besides, 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 actuality of a ghastly economy and layoffs done the way they ' ve always been done.

So listen up, Legislators, Regulators: Before you point the finger in an one's all to buy votes with your righteous sore and certainly before you pass some bum law that regulates the pricing of a product that you strikingly don ' t explain, surmise twice. Do some research. Find out the truth.