Part 1: Did you ever wonder?
What causes those crazy health insurance increases each year?
There are many factors that influence the annual increases in Health and Dental claims, particularly health claims. There are three broad categories:
- The particular claiming levels of a given Group.
- The claiming levels of the "pool" of groups that a Group belongs to: this is particularly true for smaller groups that might otherwise have wildly fluctuating rates from year to year if they were not sharing the risk with a larger pool of groups. Large individual groups (for example groups with 500 or more employees) are less affected by this factor and more affected by point 1.
- Trend Factors: Inflation and Utilization. All groups are substantially affected by this factor.
In this bulletin we will focus on Trend which consists of factors that cause increased usage of covered items(sometimes a decrease, but on balance, an increase)and inflation factors which cause an increase in the price of covered items.
Trend factors, that is the trend in the cost of items covered by a plan, are near universal in terms of the degree of impact they have on claims experience. Generally, groups, whether large or small and regardless of the type of business they are in, are affected in near identical ways (a future article will touch on why there may be some degree of variation, but for the most part there is not a significant difference across groups). While different insurers may use somewhat different factors, or disagree on the relative impact of utilization vs. inflation, in the end actual trend does not vary by much among insurers, if at all, and the total Trend factor applied by the different insurers varies within a fairly narrow band, especially when averaged over a few years.
Clicking here will take you to a chart that will give you a detailed look at the specific factors that influence the claims trend applied in a given year.
In the future we will review other elements that go into determining health and dental rates.
OJTBF©2009 Click for printable PDF version.
