Health Insurance Rates to Come Down in 2011?

An apple a day keeps the doctor awayThe Wall Street Journal is reporting this week that insurance companies are seeing a trend this year that they haven’t seen before.  At least, not in quite some time.  For the first time in a long time, insured Americans are using fewer medical services.  And it could mean lower health insurance rates in 2011.

WellPoint Inc’s CEO is quoted as saying, “Utilization is lower than we expected, and it’s unusual.”  And he’s not the only one seeing the change.  Aetna and UnitedHealthcare reported lower utilization in the first and second quarters of this year during their earnings conference calls.  Additionally, CVS Caremark, the drugstore giant, says they are seeing fewer prescriptions being filled.  Quest Diagnostics, a laboratory testing company, has had descreasing patient volumes over the first part of 2010 as well. 

Fewer people are going to the doctor this year

What is causing this decline in utilization?  Obviously, the economy is playing a large part in it.  As people look to save money, they put off going to the doctor or having elective surgery or, perhaps, even forgoing their medication.  Another reason we are seeing a decrease in utilization is that many people who were on COBRA due to the government subsidy are now coming off of it.  The subsidy is no longer being offered to the newly unemployed.  Another reason could be the increase in High Deductible Health Plans, such as HSA’s.  Because more people are responsible for the up front costs of medical services, they could be putting it off.

It will be interesting to see if these trends reverse in the second half of the year.  Perhaps as those folks with high deductibles hit their limits, there will be a jump in utilization.  Maybe the economy improves, more people get jobs and start to take advantage of their health benefits again.  BUT…if the trend of lower utilization continues…we could be looking at a flat health insurance market in 2011.  Maybe a less aggressive health consumer is here to stay. Maybe we might even see insurance rate decreases. 

Hard to believe?  Aetna’s CFO is quoted as saying, “If utilization stays down, it will have a favorable impact on rates.”  So stay tuned and remember, an apple a day…


Free Preventative Care Coming to Your Health Insurance (but not to “Grandfathers”)

Grandfather status health plans don't have to comply with preventative coverage requirementStarting September 23, any new health plan (or plan that renews after that date) will be required to provide preventative services with no cost sharing.  That means if you have insurance your policy will have to pay 100% of these services and not be able to charge you a deductible, co-pay or co-insurance.  While this is good for people, everyone should do as much as they can to stay healthy, this will add an estimate 1.0 – 1.5% increase to the cost of health insurance. 

So what preventative services will be covered?  Here is a list:

  • Annual physicals
  • Blood pressure, diabetes and cholesterol screenings
  • Routine vaccines for diseases such as measles, polio, or meningitis
  • Flu and pneumonia shots
  • Regular well-baby and well-child visits, from birth to age 21
  • Screening for conditions that can harm pregnant women or their babies (including iron deficiency, hepatitis B, a pregnancy related immune condition called Rh incompatibility, and a bacterial infection called bacteriuria)
  • Screening for obesity, and counseling from your doctor and other health professionals to promote sustained weight loss, including dietary counseling from your doctor
  • Annual mammograms for women over 40
  • Regular Pap smears to screen for cervical cancer and coverage for the HPV vaccine that can prevent cases of cervical cancer
  • Screening tests for colon cancer for adults over 50

 Just as an added note, if your health plan is “grandfathered”, it does not have to comply with this new regulation.  Grandfathered plans are those that were in existence prior to March 23rd of this year and have done nothing to lose their grandfathered status.  This is a list of ways your plan could lose it grandfather status.

Actuaries: Folk Heroes or Evil Incarnate?

Folk Hero or Evil IncarnateI’d like to take a moment on this late Friday afternoon to tell you a story.  It’s about an actuary.  Now, most people outside of the insurance industry probably don’t know what an actuary is or what an actuary does.  An actuary is a professional statistician. Unlike the statisticians who work for Major League Baseball, actuaries are more concerned about the financial impact of risk and uncertainty.  These are the guys that work for the insurance companies and calculate what your health insurance premiums are going to be based on your group’s demographics, health history (claims), plan design and the insurance company’s expectation of profit (<<<sorry, couldn’t resist a little joke).  They actually look at expectations of medical inflation (also called “trend”).  Interestingly, the ‘father of actuarial science’ was Edmond Halley, the guy who discovered the comet that bears his name, when in the late 1600’s he developed a life insurance table to calculate how much in premium someone of a given age should pay for a life annuity.  

So based on the above information, you’re probably thinking that these guys were put on earth to make your life miserable.  Well a story in today’s LA Times may change your mind.  It’s the story of David Axene and his work in reviewing Anthem Blue Cross’ paperwork that accompanied their 25% average rate increase (39% on the high end) in California.  Hired by the state of California Department of Insurance, David and his associates determined that Anthem had made a mistake in their figures and that they could reduce their average rate hike to 15% down from the 25% figure.  The Anthem folks were stunned and red-faced.  In the end, Anthem submitted new rates to the state.  Average rate increase – 14% with a maximum of 20%.  David and his team were able to cut the rate increase by half of the original figure and save the citizens of California untold millions.  How did they do it?  They found a discrepancy in the insurer’s projected cost of healthcare (medical inflation or trend).  Anthem was using a 19% trend rate, when Anthem’s own data suggested only a 13% trend rate.

This raised a couple of questions in my mind.  First, did Anthem’s actuaries just make a mistake due to random human error or were they purposefully inflating their estimate?  If it is the latter, it lends credence to claims that health insurance companies are “padding” their increases due to the threat of health care reform.  Second, I wonder how many other insurance companies in other states have done the same and are not being audited by their state’s insurance commisioner? 

Ironically, Anthem’s mistake was probably the reason that health care reform was able to succeed.  When their initial rate increases came out, the administration seized on the numbers and Democrats and Republicans alike singled out Anthem’s increases, often citing the 39% figure.  By the time the error was discovered and Anthem had lowered its rate increases, the health care reform bill had already been made law. 

Moral of the story:  Never judge an actuary by his spreadsheet    OR     All that glitters is not worth a 39% rate increase.

How are Employers Responding to Health Care Reform?

A new survey published in May by the International Foundation of Employee Benefit Plans, Health Care Reform: What Employers Are Considering, examines how more than 1,000 employers, representing over seven million lives, are reacting to the legislation and the strategies they are implementing within their organizations. Companies responding ranged in size from “small” employers with fewer than 500 employees to large companies with more than 20,000 employees. The survey is the first in a series of surveys by the Foundation that will look at health care reform’s impact on employers.

Some of the findings are quite interesting.  For example, 87% of employers agree that their organizations will continue to offer health care benefits because they are critical to employee recruitment, retention and remaining competitive.   That’s good to hear.  I wonder who the other 13% of employers are and how they plan to tell their employees that they will no longer be offering health benefits.

Other findings:

  • Two thirds (66%) of employers agree that their organizations will take advantage of the new legal provision that will offer increased levels of financial incentives available to employees who participate in employer-provided wellness programs; 9% disagree, and 25% are not sure.
  • Almost half of all respondents (48%) are focusing on redesigning their health plans so that by 2018, their plans will avoid triggering the excise “Cadillac” tax for high-value plans.
  • One in five employers (21%) is planning to add or increase emphasis on high-deductible health plans in the next 12 months. Close to 70% of these employers are likely to focus on account-based plans linked to health savings accounts.
  • Of employers whose plans currently include lifetime maximum provisions on essential benefits, only 4% are removing lifetime maximums before they are required to do so, 86% are not making changes until required, and 10% are not sure. Likewise, 4% of employers offering plans with annual maximums are removing them before they are legally required to do so, 84% are not making changes until required and 12% are not sure.

So, as an employer, how are you going to respond to health care reform?  Have you spoken with your benefits consultant or broker about what health care reform means to you?

What is REALLY Driving Up the Cost of Health Care?

The cost of health care in this country, as everyone knows, is increasing at a rate higher than the current rate of inflation.  In 1990, total health expenditures in the U.S. were $714 billion.  In 2008, they were $2,338 billion (that’s $2.3 trillion)!! Why?  What is causing this rapid ascent?  Is it doctor’s greens fees or an increase in the cost of latex gloves? 

When I was in college, my economics professor told us that price is determined by the intersection of supply and demand. Well, demand has increased as the baby boomers have aged and the supply of doctors and hospitals has probably not grown fast enough to keep up with demand.  But that cannot account for the tremendous increases in costs we’ve seen in the last two decades. 

Baby boomers and the increased use of pharmaceuticals are often cited as the culprit, spending on drugs has almost doubled since 1990, but 52% of health spending result from hospital and physician expenses.  According to a Blue Cross Blue Shield Association study, the driving forces are investments in new technology and market consolidation.  From experience, I have seen local hospitals start to specialize and build units like heart hospitals.  Also, there have been hospital build-outs or ‘rebuilds’.  Anyone in the Elgin area can tell you about the new Sherman hospital and anyone who’s travelled the Eisenhower expressway can tell you how great the new Rush University hospital looks.  Additionally, the BCBSA study found that “in some cases merging hospitals is associated with price increases of 20 percent to 40 percent” and that “every one percent increase in hospital market share from consolidation leads to an approximate two percent increase in inpatient expenditures.”

2008 National Health Expenditures (click to enlarge)


And from a technological standpoint, knee, hip and other joint replacements have increased the use of X-rays and MRIs.  Heart stents have improved (and increased the cost of) outcomes for heart patients.  And of course, the treatments for cancer and other life threatening diseases have benefited from technological advances.  So, part of the issue is that as we get better at treating injury and disease, the cost of the tools used has increased as well.

Many people have cited malpractice and malpractice insurance as a major driver of cost.  Tom Baker, a professor of law and health  sciences at the University of Pennsylvania School of law, cites a study by Towers Perrin.

…medical malpractice tort costs were $30.4 billion in 2007, the last year for which data are available. We have a more than a $2 trillion health care system. That puts litigation costs and malpractice insurance at 1 to 1.5 percent of total medical costs. That’s a rounding error. Liability isn’t even the tail on the cost dog. It’s the hair on the end of the tail.

Back to prescription drugs for a moment.  Prescriptions as a percentage of total expenditures doubled in twenty years, but expenditures tripled in that time.  That means that the total amount spent on drugs went from almost $40 billion in 1990 to over $230 billion, a 575% increase!  Why so much, so fast?  According to Kaiser, three factors are responsible: more prescriptions are being written; newer and more expensive drugs are replacing older less-expensive ones; and manufacturers are increasing prices. In 1993, there were nearly 7 prescriptions per person written in the U.S.  As of 2008, that number has climbed to almost 11 prescriptions per person, while the population has grown from 240 million in 1990 to over 300 million today. 

Seems to me, if we are truly to get real health care reform, we need to start focusing on health management instead of sickness management.  All of us need to start taking greater responsibility for our health and ensure that we are doing all we can to be healthy.

Government Launches New Health Care Reform Website website screenshotAs I mentioned in an earlier post, the federal government was going to launch a national website called and I was going to tell you when it was up and running.  Well, it is up and running as of today. 

On quick inspection, I’d say the Department of Health and Human Services has done a fairly good job.  There is an area for people to find health insurance coverage based on their situation.  I tried this out and it will actually provide you with information about health insurers in your state and provide links to the plan highlight sheets.  Eventually, there will be premium estimates listed there as well.  Most likely, this will be the area where they list insurers adherence to the minimum loss ratio requirements (the amount of premiums that insurers actually spend on health care).  There is also an area for people to compare hospital performance in their communities, which is nice and actually quite informative.  There are other areas that provide people with preventative health tips and information about how the health care reform law will effect you.  The area I like best however is the interactive timeline for health care reform.  This is a nice reference tool and gives you an idea of some of the other things we can expect over the course of the next few years.

Tell me what your opinion is or give me some suggestions on what else you think should be posted on that site.

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