Thursday, September 13, 2007

Health Insurance Premiums Rose Only 6.1% in 2007--But This May Be The Last Year the Trend Rate Will Fall

According to the annual Kaiser Family Foundation survey of employer health benefit plans, the average employer premium rose 6.1% in 2007--the lowest increase in four years of successively falling trend rates.

The increase was 13.9% in 2003 (the recent peak), 11.2% in 2004, 9.2% in 2005, and 7.7% in 2006.

The average cost of family health insurance also rose to an incredible $12,106 while the average cost for individual coverage in an employer plan was $4,479.

The relatively low employer medical trend rate of 6.1% was still more than twice the rate of inflation--which was 2.4% in July.

Even a 6.1% trend rate is unsustainable because it is so much greater then the general inflation rate, the increase in wages and the overall growth in the economy--all in the 3% range.

Worse, I expect this to be a bottom in the health care trend line.

Health plans, in their recent quarterly earnings releases, are generally reporting medical trend rates and medical cost ratios that are flat to beginning to edge up a bit.

Even looking back to last year, recently completed a study of publicly traded and not-for-profit health insurer results in 2006 and reported the following:
  • A review of 2006 annual financial statements found that the industry made $11.2 billion in underwriting income compared to $11.3 billion in 2005.
  • While that was a very slight decline in health underwriting results for 2006, it came on the heels of a series of double-digit improvements in profitability in the prior years of the decade underscoring the conclusion the easy money in health care has come to an end.
  • Insurers collected $232.56 per member each month in health revenue in 2006 compared to $216.08 in 2005—a 7.6% increase.
  • However, medical costs rose by an even greater 8.5%, from $181.14 per member each month in 2005 to $192.52 in 2006.
  • “Competitive pressure” on premiums resulted in a decrease in overall profit margin from 4.4% to 3.8% in 2006.
  • The commercial health insurance line saw a full 1% decline in margin while the private Medicare business saw its margins rise from 4.9% in 2005 to 5.7% in 2007. summarized its findings saying, “The industry is now facing a decline in margins on the commercial business, while potentially facing cutbacks in Medicare and an uncertain future regarding how the country finances health care.”

That about sums it up--escalating commercial cost trend just as Medicare payments are at serious risk in a Democratic Congress.

Just as the political heat is growing for health care in an election year, costs are likely on the rise again.

That is a very volatile political mix!
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