Archive for February 2013

Why did my health insurance rates just go up?

We are frequently asked by our clients what should they expect in 2013 regarding changes to their plan design in their employee benefits and what the rate increases might be.  We tell them projections are currently running 30 to 50% for rate increases.

The obvious question is then “Why would rates go up so much?”

The simple answer is insurance covers much more than ever before and as costs increase for medical services more money is required in the insurance pool to cover those costs. There is a simple economic philosophy that applies here – money coming in must always exceed money going out.

To understand how rates go up you need to understand how health insurance works.  Insurance is a contract between you and an insurance company to assume risk of some sort.  In the case of health insurance it is an agreement between you and the insurance company for them to pay all of your eligible bills for medical expenses no matter how big they get.  Over time legislation has added things that became mandatory coverages in your health plan and each one of these has increased the cost of your plan.

What are some of the things that add costs to your health plan?

1.) Maternity – Several years ago maternity became a mandated benefit to all medical insurance plans written for employers. This meant that the average cost of a maternity benefit had to be calculated into the overall risk for each group. In small group (under 50 employees) a concept called “pooling” is utilized which means that all claims for an entire group of companies are spread across the entire pool of companies that are insured. The maternity risk was spread across the entire pool raising everybody’s premium by some small amount.

 

2.) Mental health – Until recently most mental health issues were excluded from coverage by medical policies.   Recent legislation has expanded the meaning of mental health to cover marriage counseling, autism, and almost every definition of depression. Mental health parity legislation has made this coverage mandatory in all policies and the result has been a substantial addition to rates for all medical insurance plans.

 

3.) Preventive health services – These are services you would receive at the physician such as a physical and general wellness management. In the past it was anticipated that people would pay for these themselves as opposed to claiming them on insurance. As plans developed some general wellness was included which added to the cost of premium. With the advent of the national healthcare law, preventive health services have been mandated and are required to be paid for at 100% reimbursement level.

 

4.) Pediatric oral and visual services – Dental and vision coverage traditionally have not been part of a standard medical plan. The insurance market for many years has provided both dental and vision plans which covered services not included in a standard medical plan. By mandating that these coverages be added to medical plans,  additional rates have been required to cover for the increased risk and cost.

Thirty-five years ago the standard deductible was $100 per calendar year, the coinsurance level was 80% paid by the insurance company, and the maximum out-of-pocket to the insured was $1,000 plus the deductible. The overall plan maximum benefit that would be paid was $50,000. The average premium cost for that plan was about $15.00 an employee.

In 2013 that same plan for an average population would have an unlimited maximum benefit and the cost per employee might average around $400.00 per month. Many things have happened in those 35 years including general cost inflation and the inclusion of many more benefits in the basic coverage. All of these occurrences have caused rates to increase.

What we now face is medical plans that cover more than had ever been anticipated with premium rates that are well beyond the ability for an American citizen to pay based on the average income level.

To solve this problem we are all going to be required to have a levelheaded discussion about what we are willing to give up to achieve a cost that we can afford to pay.

 

 

 

 

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