Are the premium increases due to the stock market or is it utilization (status quo)

A broker’s thoughts on why the stock market is not the driver of the premium increases.

I disagree that the stock market is a major driver of health care expenditure increases.  If I understand correctly, you argue that insurance companies invest reserves in the stock market so that when the market is down, they must raise premiums to cover their market losses.  I have been involved with self-insured plans during my benefits career and have observed that costs per covered employee in these plans track the costs per covered employee in fully insured plans fairly closely.  Investment of reserves is not an issue in self-insured plans. 

I believe the major drivers of health care expenditure increases are increased utilization due to an aging workforce, increased utilization due to new drugs and medical technologies, medical inflation and state and federal government mandates and regulations – in that order.  I don’t think the stock market has any noticeable effect on the cost of providing employer-sponsored health care.  The correlation you have discovered is a coincidence.  For example, in the Clinton administration, rising health care expenditures were brought under control on the supply side by aggressive network discount negotiations at a time when the market happened to be going up and more recently health care expenditures are being brought under control at the demand side by aggressive health risk management and consumerism, also at a time when the market happened to be going up.

John H, CEBS  (pulled from CEBS forum 3-5-08)



Please notice that my posts don’t say a major driver. But the facts are what they are. The reaction to the stock market can’t be denied. And all insurance premiums are affected by the stock market, including self funded.

The emails I have gotten from brokers have stated the increases have already started. The most surprising are the increases in the HDHP plans. In some cases they are reporting increases over 25%!

John while we can disagree on the stock market impact if you follow the charts listed in my blog the increases and decreases followed exactly with the up down of the stock market.

What I believed in my 26 years of benefits was  utilization and that is what we were told when out delivering renewals but what always stuck in the back of my mind is "why" all the companies seemed to have the same type of renewal costs? How can that possibly be? Each company is managed differently and utilization cannot be the same for every company?

Thus, there must be an outlier that is affecting the carriers equally, and in the same way. How do we explain that? And as an agent, do you want to present to your clients that utilization is the primary outlier that is creating the premium increases, when in fact, it plays  a part as the does everything listed on the pie chart?

Are we conducting business as usual if we rely on the old line "it is utilization"? Should we not warn, and prepare people for the coming increases? There are things we can do. But no employer should be caught flat footed, and it would appear to me that my clients are relying on me to bring bad, and good news. 

So my follow-up questions to you are:

1. Can you prove that every company has the same utilization experience?

2. What are other explanations for the increases that plague all carriers at the same time?

3. We know that the stock market plays an important role in property and casualty insurance it can be a logical hypothesis to assume it affects health insurance is it not?

Anyway thanks for the super debate.

Ric Joyner