Every company we meet always has the same question: “Will health insurance premiums ever go down?” This is a very valid question considering that insurance premiums have not decreased for over 16 years. According to the annual Kaiser Family Foundation Employer Health Benefits Survey, insurance premiums have continued to rise ever since they began measuring them in 1999. There are two primary reasons why corporations will continue to pay more each year.
First, medical trend. This is the year over year increase due to the increased cost of reimbursing medical providers. Insurance carriers have to reimburse doctors, medical groups, hospitals, and pharmaceutical companies. As these providers increase their costs each year, the insurance carriers then pass those increases over to their insured customers.
Average trend for the current year is approximately 7% depending on the insurance carrier. If your plan is fully credible (meaning that your plan is not pooled with other employer groups and is rated solely on your experience), and your plan meets the target loss ratio, then you will likely receive a 7% increase.
Second, the ACA. With the passing of the Affordable Care Act, employers are guaranteed that their insurance premiums will increase because of all of the taxes associated with this piece of legislation. PCORI fees and Transitional Relief taxes will amount to approximately 3.6%. Even if your plan were to receive a 0% renewal, you will have to add in approximately 3.6% to account for taxes alone.
Adding trend and the ACA together, and assuming your loss ratio comes in right at the insurance carriers target loss ratio, you will automatically receive an increase of 10.6%…every year.
Will health insurance premiums ever go down? Someone once said, “There is one thing we can learn about history, and that is, we can always learn from history.” History shows that premiums have not gone down and there is nothing on the horizon to prove this otherwise. In fact, there are more reasons to prove that premiums will continue to rise. However, there is also a saying that goes along the lines of “What goes up, must also come down.” In the past twenty years, we’ve seen a technology bubble as well as a real estate bubble. In both instances, these sectors rose with no end in sight. And in both instances, both crashed. One of the means by which medical costs could go down is if there are more price controls over what can be charged. But if it is your newborn baby that is in the hospital, how much would you be willing to pay for the best in care? Herein lies not just a price dilemma, but a moral dilemma: what is the value, we as the most prosperous society in the world, place on life.
Alan Wang is the President of UBF and serves as the lead consultant. He has delivered the UBF solution set throughout the world and is highly regarded for his areas of expertise. You can follow him on Twitter @UBFconsulting.