Dear HR Executive:
The ink is barely dry on the insurance industry’s highly public pledge to trim health insurance costs – or, to be accurate, their nonbinding pledge to work really hard to trim the rate at which health insurance costs will go up.
But maybe insurance companies didn’t get the memo.
As we reported, the industry says it wants to help the Obama Administration reduce the growth rate of health spending from 6.2% to under 5%.
Looks like they’re gonna miss that target:
- Rhode Island's top two health insurance companies, for example, just filed rate requests for next year. Blue Cross & Blue Shield of Rhode Island is proposing a 16.3% hike. United HealthCare of New England wants to raise its large-group rate by 11.6%.
- Hawaii’s Medical Service Association is asking for a small group rate increase of 12.7%.
- Oregon's largest health insurer just won a 14.7% rate increase on individual and small group plans, after raising its rates 26 percent a year ago.
- In Pennsylvania, Independence Blue Cross wants a 52% boost in nongroup rates.
- Blue Cross Blue Shield of Michigan is asking for a staggering rate hike of 56% on some individual plans.
And here’s the curious thing. Utilization of medical services is flat.
In a new study, researchers at the actuarial firm Milliman found that consumption of medical services is expected to be flat this year for the first time ever. Even so, total medical costs for a typical family of four in 2009 are expected to go up 7.4% this year, to $16,771. Employers will pay $9,947 of that, and employees will contribute $4,004 through health plan premiums and another $2,820 through out-of-pocket costs such as co-payments and deductibles.
Kate Fitch, a consultant at Milliman, attributed the consumption slowdown to better disease management and wellness programs. However, per-unit medical costs are up.
Still, that’s "only" a 7.4% increase in underlying costs. So why the big jump in premiums?
Health insurance administrative costs have been rising faster than inflation. So that’s part of it. But mostly it’s about the stock market.
When the market is strong, insurers earn a considerable portion of their income from investments. That helps keep health insurance costs in check. But when the markets tank, insurers have to make up the difference somehow.
That somehow is you.
So the rate requests we’re seeing today reflect a combination of higher medical costs, higher administrative costs, and the loss of investment income. That’s a triple whammy that leaves policyholders holding the bag.
If the stock market continues to improve, the climate could change. Insurers will be looking for more cash to invest, so they’ll get more aggressive to win your business. That could finally bring some relief.
Unfortunately, it won’t be any time soon. The rates they’re looking to lock in now will be around for a while.
Editor, HR Café Training Center