By Ric Joyner, CEBS, GBA, CFCI
“Hey, my premiums were lower last year…what do you mean premiums are on the rise?
Answer: The stock market.
We know that medical trend is 9% per year on average. (AHIP 2006) This is when the stock market is good. The stock market has lost 1,700- 2,000 points in the last 6 months. What does this mean? Health insurance premiums are not immune to the cyclical stock market, and because the stockmarket is on the decline the premiums are on the way up. This phenomenon was acutely felt during the 2001-2003 plan year renewals when insurance premiums were up an average of 14-140%!
“What evidence do you have Ric?”
The “pie” chart of what makes up the cost increases is included here:
Part of the premiums are placed in reserve for investment. This is true for property and casualty insurance and health insurance. The reserve is invested in the stock market. The idea for any fund manager is to get a 25% return on the funds. During the Clinton presidency, and the stocks were high in the mid 90s. Premiums average increases of .8% in 94! (Kaiser 2007)
Last year stocks were strong, the economy good. As a result of strong stocks premiums were low. Today we are in a bear market (up and down from day to day), and this uneasiness causes people to get into more stable funds to prevent losses to the gains from last year. Thus, growth is smaller in their investments, and CEOs typically will want to hit their numbers for profits. Other factors affect premium costs such as administrative, marketing, underwriting, claims, and others are listed in pie chart above.
My prediction is that the stock market lost 15% of its value (hovering around the 12,000 mark) thus premiums will rise 15% plus 9% normal medical cost=24%. This is just the base for increases and is for a healthy group. Sick groups can approach 45-60% in the next year.
“But, my agent and carrier are not talking premium increases?”
I believe agents should warn clients now to budget for these potential increases. I know we like to give good news to our clients, but warning them will give you credibility. And reacting now to prepare a client, will allow you, and your team to give the clients such options as HRAs, HSAs and FSAs. It will also keep the other “hunters” away from your block of business.
Does this create work and effort on your part to be more proactive? Yes, but by implementing e-Business tools on your web site will help make you more efficient. The tools put on your web site to assist your clients will aid them in planning for increases. Link to partners such as eflexgroup for those tools, and let us show you how we can help.
Comments from Brokers regarding the premium increases. Both are in Florida.
It is ugly out there already and getting more so every day. Most employers continue to reduce benefits in order to keep increases down to something manageable (under 10%). However, many are to the point that it is difficult to reduce benefits further without a major push back from employees. Of course a lot of people are happy just to have a job right now, but when the economy improves, many employers will have a problem. And the long term projection is an employee shortage as more and more baby boomers retire. John Fraser, Wallace Welch and Wellingham
“Sure wish that were the case in Florida. We’re seeing trend averaging about 12-13% for most carriers, but one major carrier has simplified underwriting at initial application and so typically grants a 9% discount the first year. Most of those cases are coming back with the 12-13% trend, and around the full maximum additional rateup in a single year under Florida small group reforms of 10% – so we’re seeing a lot of 22-25% increases this year.” John S, Seminole FL
Subject: Are you ready for the coming premium increases of 25%-60%?
“I realize things are different here in California, but I have not seen rate increase that high. My year has been pretty easy so far has most of my groups are getting 3% increases. Some are even getting up to 6% decreases in their premiums.” Anthony H, Nevada City CA
I don’t know what plans my good friend Anthony H is selling but here is the Small Group scoop for one of our largest carriers effective 5-1-08. This is my ramble: ppo’s 12.5, hmos 9.4, QHDHP 25%, Lumenos 35%. What kills me is that the largest increase is on the plans that were going to “change everything”. The plans that ENCOURAGED wellness benefit utilization. It appears the insured masses are getting killed because they incurred so many wellness claims. In other sections of the business community it is called “bait and switch”.
I look forward to their explanations.
Paula W, Benefit Consultant CA
AHIP (2006) The Factors Fueling Rising Healthcare Costs 2006 PriceWaterhouseCoopers page 8: Retrieved from web site 03-04-08 www.pwc.com/healthcare
Kaiser (2007) Health Care Costs…A Primer; page Sec1:9; Retrieved from web site 03-04-08: http://www.kff.org/insurance/upload/7670.pdf