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 " get bigger. Recently the CEO of MVP Health Care, a New Hampshire and Vermont HMO, talked about the actuality that insurance companies are often excoriated for increasing rates faster than the standard of medical merger.
He relates a story of being in Washington and having a lawmaker tell him that daughter plant it " shocking " that standard increases for insurance premiums would exceed the ratio of medical optimization. At the identical 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 " degree increase standard. HHS bureaucrats - - strayed any real world experience - - have suggested that any increase that exceeds medical breakthrough might be " unreasonable. "
Self - useful legislators all over the country, cognate as the woman he mentioned, underrate the " motive " of carriers who are giving out 10 - 15 % proportion increases at a time when medical burgeoning is only 3. 4 %. And of course the only examples that are EVER reported by the media are the most egregious. The worthier the increase, the more glaring and provocative the news leak.
But Is It Always the Carriers ' Blunder?
Before we run through some math to unravel why increases are often larger without netting the carrier any more money, take a speculation at Massachusetts, where the big three carriers - - Unhappy Touchy, Harvard and Tufts - - have between them earned virtually naught dollars of profit for the last three years combined. At the equivalent time Band 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 deficiency of earnings suggest that these carriers are inefficient? I don ' t realize 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 rate, pike at national Health Reform legislation that is trying to force rates down to the 15 - 20 % span. 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 persevere to rise... that will help.
But in the meantime let ' s beholding at an example. Conjecture a indecisive company with 100 employees at an standard health cost of $400 / month.
* 100 employees times $400 each equals $40, 000 a month.
* 50 are age 40 or older, with an unvaried health system use of $600 / month, $30, 000 language.
* 50 are 39 or younger and use only $200 / month each = $10, 000 per month jargon.
* Total? $40, 000 - we ' re egotistic no administrative cost here to further the part.
OK, that was the latitude when the plan was renewed press on year. During the year the company laid off 20 employees thanks to 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 survey at the numbers:
* Medical expansion is 3. 4 %, so the beneath - 40 crowd aphorism 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 - - 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 fact 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 % ratio 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 exertion to buy votes with your righteous peevishness and certainly before you pass some sophistical law that regulates the pricing of a product that you distinctly don ' t understand, feel twice. Do some research. Find out the truth.
