Health Insurance Rate Expectations for 2011 UPDATED

Back in September, I predicted that health insurance rates for 2011 would see approximately the same amount of growth as they did in 2010, just under 15% (14.8% was my prediction). Really going out on a limb, right? For the last 4 years the average national health insurance increase has been in the double digits and averaged 10.3%, while last year we saw increases locally in the 15-20% range.

Well now there is a new report out compiled by Weiss Ratings (an independent rating agency) showing that health insurers saw total national medical expenditures decrease by 1.6% for the first nine months of 2010. This report corroborates what we were hearing earlier about utilization.  That 1.6%  represents a $3.7 Billion decrease from 2009. Based on the current trend, Weiss expects expenses for the entire year will decline as much as $9.8 Billion or around 3% from 2009. This is great news for most insurance companies as it means that they collected much more in premium than they paid out in claims which means that they’ve seen their profits increase greatly this year. And it’s already reflected in their stock prices. As a group, health insurers paid out only 71% of premiums on medical costs. In other words, they had a Medical Loss Ratio (MLR) of 71%. Under the new health care reform law, insurers will be required to have an MLR of 80% for small groups and 85% for large groups or pay policy holders a refund. Unfortunately, that portion of the law doesn’t take effect until 2011, so no soup for you!

Hopefully, insurance companies will pass along at least a portion of these savings onto their customers. Based on the above info and the scrutiny that insurance companies have been facing over the last year due to the new law, I am expecting insurance companies to reduce their increases fairly substantially from my earlier prediction of 14.8%. My new prediction is that we will see increases in the 5-7% range with my exact prediction coming in at 6.4%. That’s right! We’re still going to see increases (due to medical inflation and higher utilization as the unemployed return to the work force) but they will be in the mid-single digits, which will practically feel like a rate cut once employers tweak their medical plans. Again, this is a prediction based on the average increase for all insurance companies around the country. Locally, some businesses may actually see REAL decreases (maybe a percent or two).


Should Your Company Stop Buying Health Insurance?

The Patient Protection and Affordable Care Act is making some employers take a look at self-funding their medical plans since some of the costs to comply for fully insured plans add 2-4% to the premium on top of the double-digit increases they would be getting anyway. Self-insurance can help reduce overall costs if your employees are relatively healthy and your medical loss ratios has consistently been low (typically less than 80%).  Stop-loss insurers of late have been willing to consider smaller companies (some will insure under 100 employees). For employers who choose to self-insure, they must evaluate which network to use and who will process the claims (a third party administrator (TPA) or an insurer who will ‘rent a network’).  Additionally, you will need to evaluate who will provide stop-loss reinsurance protection.

For those of you unfamiliar with self-funding or stop-loss insurance concepts, here’s how it works.  The TPA will process claims as they come in.  The employer pays the claims through the TPA (to comply with HIPAA).  Typically, you are able to save money just on the difference in administration costs between the TPA and your insurance company.  For added protection, you should purchase stop-loss insurance.  Stop-loss insurance does what it says.  It stops the loss (of dollars) when there is a big claim.  This is especially important if cash flow can be an issue for your company.  There are two types of stop-loss coverage and I recommend having both.  The first is Specific Stop-Loss, sometime referred to as “Spec”.  If a single large claim comes in, say a heart bypass surgery for $250,000, the spec coverage will limit the employer’s portion of the claim.  The employer can choose the level that they will be able to fund ($50k, $100k, etc.) and the stop-loss insurer will pick up the rest.  Obviously, the higher level the employer chooses to be responsible for, the lower the cost of the insurance.  The second type of stop-loss coverage is Aggregate Stop-Loss, or “Agg”.  This protects the employer from paying out claims for the plan year once a certain total claims level is reached.  This is usually expressed as a certain percentage over your expected claims volume, also referred to as a “corridor”. 

Unfortunately, too many employers (and their advisors) view stop-loss protection simply as a commodity and that all policies are the same. Buying based on the lowest price without getting all the of the policy details can be costly. I will share with you some cases that illustrate my point: A company I’ve been speaking with selected a stop-loss program that paid claims up to three months after the plan year, this is referred to as a 12/15 contract, which means that the insurance will cover all claims incurred in a twelve month period AND that are received in the 15 months from the start date. When a large hospital claim occurred in late December, a carrier audit process was triggered which resulted in the claim of $280,000 not being paid until early April, four months after the plan year-end and one month after the stop-loss contract provision. The company incurred the entire liability on that claim because although it was incurred during the plan year, it was not paid until after the 15 month period of the contract had expired.  Had the company chosen a longer term contract (with a slightly higher premium) they would have been able to limit their payout to the “spec” limit, which in their case was $50,000. 

Here’s another. A self-funded company was preparing for the renewal process, having recently learned of a large, ongoing $1 million a year claimant. The carrier providing the stop-loss on the program decided to exercise their right to “laser” (Dr. Evil finger quotes) the claimant, meaning that it would not provide stop-loss coverage for that employee. Given that there was a large ongoing claim, no other carrier would touch this company. Giving the carriers a lasering clause will reduce the premium, but it is a dangerous proposition when a large claim actually hits.

Here’s a quick list of questions to ask when considering self-funding:

  • What specific stop-loss level would you be comfortable with? Do you have the cash flow to pay a big claim?
  • What aggregate stop-loss level are you comfortable with? Is your expected claims projection realistic?
  • How long should incurred and paid periods be?  Choosing a short paid period could be costly.
  • Lasering – some policies state no lasers on renewal, but not all. Are you willing to pay for that protection?
  • Does the policy cover prescription drugs? Not all do.
  • How does the policy tie into your health plan’s summary plan description?

State Health Care Reform Lawsuit Updates

Uninsured Adults by StateWe are starting to see movement at the state level in several directions.  First, the number of states filing lawsuits against the federal government and the health care law continues to grow.  Six additional states are joining the Florida lawsuit and a seventh, Oklahoma, announced its intention to file a lawsuit on its own.  This brings the number of states attempting to turn over the law to 28.  Here is the list:

Alabama, Alaska, Arizona, Colorado, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Louisiana, Maine, Michigan, Mississippi, Nebraska, Nevada, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Texas, Utah, Virginia, Washington, Wisconsin and Wyoming.

The main point of dispute for the states is the individual mandate that starts in 2014 which will require individuals to carry health insurance.  According to a 2009 Gallup poll, the number of uninsured adults increased to 16.2% from 14.8% in 2008.  15 states had over 20% of the adults in their state uninsured, with Texas leading the way at 26.9%.  One interesting point to note from the survey is that of the 15 states with the highest number of uninsureds, 11 of them are suing to overturn the individual mandate.  Conversely, of the 15 states with the lowest number of uninsureds (all of them are under 13%), only four are involved in the lawsuits.  By the way, the state with the lowest percentage of uninsured adults, at 5.5%?  Massachusetts.  The state with a health insurance mandate.

Health Insurance Rate Expectations for 2011

medical inflation vs CPI courtesy healthinflation.comI recently wrote a post about health insurance companies seeing a trend in decreased utilization, which could mean lower rate increase in 2011.  But perception is often different among different groups.  For example, the National Business Group on Health in Washington, which represents large companies, reported last month that its members expect increased costs of almost 9 percent, up from 7 percent in 2010. In addition, the Council of Insurance Agents and Brokers reported in June that its members were seeing group health plan increases ranging between 11 percent and 20 percent for companies with less than 50 employees, and increases between 6 percent and 15 percent for employers with 51 to 500 employees. As a result, they expect increases in 2011 to mirror 2010. 

We are seeing similar increases with our clients and as a result we are seeing clients looking seriously at adding high deductible health plans, Health Savings Accounts and Health Reimbursement Accounts to their plan designs.  Gary Claxton, director of the Healthcare Marketplace Project, said, “Consumer-driven plans have clearly established a foothold in the employer market, tripling their market share from 4 percent in 2006 to 13 percent today.”

To be sure, many are blaming Health Care Reform for at least part of the premium increases.  However, many of the law’s provisions won’t be effective until 2014. Mark Schmit, director of research at the Society for Human Resource Management in Virginia says that because , “…all the remnants of the healthcare system that led to reform are still in place…annual premium increases are inevitable for the next few years.”  He cites the aging workforce as the main driver of healthcare costs for 2011.  Obviously, he is in the camp that believes Health Care Reform may slow premium increases at some point. 

Interestingly, the Bureau of Labor Statistics measured medical service inflation at 3.4 percent for 2009 and through July of 2010 at 3.2 percent.  Now, premium rates include this rate plus utilization measures plus health risk measures.  So if we take the average premium increase in 2010, which was about 15% and subtract out the 2009 medical inflation of 3.4 percent, we’ll get 11.6 percent.  Adding that number to the projected medical inflation number for 2010 (3.2 percent) we should expect premium increases to average about 14.8%, all variables (utilization and health risk) being equal.  I personally believe that utilization will be down in 2010 from 2009, so I expect rates to be slightly below this number next year.  Let’s keep our fingers crossed.  Remember, stay healthy and be well!

Chicago Area Celebrates in September!

Chicago area fesitvals celebrate life insuranceSeptember is Life Insurance Awareness month and already many communities have scheduled festivals and parades.  Oh, wait, what? They’re not celebrating life insurance awareness?  Well, at least let me make you aware of it. 

The Chicago Tribune is reporting that almost 35 million American households neither own their own life insurance policy nor are covered under employer sponsored plans.  That’s up from 24 million households only six years ago.  Among households with children under 18, four in 10 respondents said they would immediately have trouble meeting living expenses if a primary wage earner died, and another three in 10 would have trouble keeping up with expenses after several months.

Let me be clear, if you have a family and you are the primary wage earner, you need life insurance.  The only reason you wouldn’t need it in that situation is if you are wealthy enough that you have put aside enough money to cover your funeral and burial expenses and provide your spouse and children with enough money to cover their immediate financial needs for at least a year.  Traditionally, people have been told that they should carry at least 10 times their salary in life insurance.  In reality, you should sit down with an advisor and let them do a needs analysis.  You may want to provide your family with enough money to pay off your home mortgage, provide for your child(ren)’s education and/or provide enough to pay your estate taxes. 

Many people get life insurance through their employer, but typically the amount offered is just enough to cover burial expenses.  If you are an employer, you may want to review the life insurance benefit you offer to your employees.  In addition, if you are a partner in a business, you may want to talk with someone about how you can provide for the continuation of the business if either you or one of your partners passes.  Life insurance can help you achieve that goal.

I know people don’t like to discuss life insurance because it reminds us of our own mortality, but for the peace of mind and security of your family you should at least have a brief conversation with a life insurance agent.  If you would like a no obligation, free consultation, please contact me.  Trust me, you’ll enjoy those September festivals a lot more knowing that you’ve secured the future for your family.

Here’s a list of upcoming festivals in the Chicago area and beyond for the month of September:


Festival Name  Start Date  Community Name 
On the Waterfront 09/02/2010 Rockford, IL
Buffalo Grove Days 09/02/2010 Buffalo Grove, IL
Taste of Melrose Park 09/03/2010 Melrose Park, IL
Kewanee Hog Days 09/03/2010 Kewanee, IL
Lake In The Hills Summer Sunset Festival 09/03/2010 Lake in the Hills, IL
Taste of Polonia 09/03/2010 Chicago, IL
Naperville Last Fling 09/03/2010 Naperville, IL
Keepataw Days 09/03/2010 Lemont, IL
Back to School Concert 09/04/2010 Chicago, IL
Rock Island Grand Prix 09/04/2010 Rock Island, IL
Schaumburg Septemberfest 09/04/2010 Schaumburg, IL
34th Annual Fox Valley Folk Music & Storytelling Festival 09/05/2010 Geneva, IL
2010 Oktoberfest 09/09/2010 Villa Park, IL
Winfield Good Old Days 09/09/2010 Winfield, IL
Itasca Oktoberfest 09/10/2010 Itasca, IL
Festival of the Vine 09/10/2010 Geneva, IL
Festival of the Vine 09/10/2010 Geneva, IL
River Days 09/10/2010 Plainfield, IL
Darien Fest 09/10/2010 Darien, IL
Chuck’s Fest 2010 09/10/2010 Bridgeview, IL
4th annual amateur RibFest 2010 09/11/2010 Forest Park, IL
Ukrainian Village Fest 09/11/2010 Chicago, IL
Forest Park Ribfest 09/11/2010 Forest Park, IL
Cruise 11 to remember 9-11 09/11/2010 Decatur, IL
Historic Route 66 Car Show 09/11/2010 Berwyn, IL
Clinton County Art & Wine Festival 09/11/2010 Carlyle, IL
Scandinavian Day Festival 09/12/2010 South Elgin, IL
Dog-toberfest 09/17/2010 Berwyn, IL
Altamont Schuetzenfest Inc. 09/17/2010 Altamont, IL
Fall Fest 09/17/2010 Des Plaines, IL
Berwyn Oktoberfest 09/17/2010 Berwyn, IL
Lewistown’s 4th Annual Fall Festival 09/17/2010 Lewistown, IL
OakToberfest 09/17/2010 Oak Park, IL
Oktoberfest Berwyn 09/17/2010 Berwyn, IL
Good Shepherd Manor Fall Festival 09/18/2010 Momence, IL
Huntley Fall Fest 09/24/2010 Huntley, IL
Chicago Oktoberfest 09/24/2010 Chicago, IL
Highwood Last Call Art Fair 09/25/2010 Highwood, IL
Apple ‘ n Pork 09/25/2010 Clinton, IL
14th Annual Eli Cheesecake Ferstival 09/25/2010 Chicago, IL
31st Annual Barching Band Jamboree 09/25/2010 Palos Hills, IL


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…

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.

Is Your Insurance Company Paying Your Health Claims Correctly?

insurers processing claims incorrectly 20% of the timeThe AMA came out with a report yesterday that said that one in five medical claims is processed incorrectly.  The AMA claims that over $770 million in doctors’ administrative costs could be saved if the health insurance industry improves claim processing by one percent! Keep in mind, this amount doesn’t include the out of pocket money that patients could save if the claim is processed correctly. 

The report looked at seven of the largest health insurance companies for timeliness and accuracy of payment.  Here are the accuracy results of the insurers that operate in Illinois:

  • Aetna                             81.23%
  • Cigna                             84.51%
  • HCSC (Blue Cross)    87.83%
  • Humana                        82.92%
  • United Healthcare      85.99%

This report drives home how important it is for everyone to check their Explanation of Benefits.  Explanation of Benefits (EOBs) are usually sent via mail and can be checked on-line at most insurer’s websites.  They will explain the amount that was charged, the discount that was applied, the amount the insurance company paid and the patient’s responsibility of charges.  Your broker should help you with any claims issues you may have.

Work Comp 101

Earlier this month, Bill Stankevitz wrote a series of articles for the Business Ledger explaining the ins and outs of worker’s compensation. The series is one that every business owner MUST read. Rather than attempting to explain or re-post the articles, I am providing links to the articles themselves.


Understanding Worker’s Compensation
Part I
Part II
Part III
Part IV

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