4th Quarter Renewal Season Tips – Dave’s Corner

We get asked all the time to produce some information that an advisor can share with their clients about health insurance premium rate history – especially during the 4th quarter renewal season. Here are some tidbits you can pass along to your clients so they can better understand what is going on in the health insurance market today.

Health Benefit Costs – In the United States

There are dozens of annual studies conducted by various entities regarding the cost of health insurance coverage. Among some of the more well-respected studies is one entitled “Employer Health Benefits – Annual Survey” which is produced by the Kaiser Family Foundation (KFF). While this study involves national facts and figures, it does break out some numbers and trends on a regional basis. The 2020 survey (released in mid-2021) verified what has long been known: Employer sponsored health benefit costs continue to steadily increase:

A copy of the full 214-page report is available for your review (contact me at dave@dickerson-group.com and I’m happy to forward to you).

n addition to the annual KFF survey, there are several other sources which provide credible information on health insurance costs. You can google the topic “health insurance cost studies” and will find a host of articles on this topic.

Premium Rate History – In the United States

Here is another chart produced by Project HOPE – The People-to-People Health Foundation, Inc. and shared online at Health Affairs. It shows the dramatic increase of annual premiums for both single and family coverage between 1999 and 2018. What I find interesting is that the steady rise in health insurance premium rates did not seem to change after the implementation of the Affordable Care Act (ACA). Note that the ACA went into full effect in 2014 an imposed the “Minimum Loss Ratio” rule on health insurers so that their premium rates would now be more a direct reflection of the cost of health care. These rules require that insurers must spend 80% or more of premiums on claims in the Individual and Small Group market and 85% in the Large group market – meaning that when premium rates go up this is a direct reflection of increased cost of health care.

Premium Rate History – In California

Regarding the cost of health insurance coverage in California, there have been studies conducted by several organizations since the implementation of the ACA and establishment of the Covered California Marketplace. Again, you can google the topic of “California Health Insurance Premium Rate Increases” and find some interesting information.

Each year Covered California produces a report on premium changes in the Individual Market – which is separate from the Small Employer (2-100 employees) and Large Employer (101+ employees). Their price survey is a good indication of market trends in California. Of course, you must remember that in the Individual and Small Employer markets, there are government-imposed rating rules, which mean that rates can vary substantially among the 19 rating areas in California – a direct reflection of the geographic variation of health care costs.   

The following information summarizes rate changes in the Covered California program between 2015 and 2021:

2016: Increase of 4 percent. The exchange noted that consumers who shopped around during open enrollment would have the opportunity to lower their premiums by an average of 4.5 percent, and as much as ten percent in some areas of the state.

2017: Increase of 13.2 percent. This was more than triple the average rate increases in 2015 and 2016, but it was also considerably lower than the average rate increases that were implemented in many other states for 2017.

2018: Increase of 12.5 percent plus an additional 12.4 percent for silver plans. Covered California decided to implement the CSR surcharge (i.e., a larger rate increase for silver plans) on October 11, the day before the Trump administration announced that CSR funding would indeed end immediately. The average surcharge on silver plans was an additional 12.4 percent, on top of the rate increase that would have applied otherwise.

2019: Increase of 8.7 percent. The weighted average rate increase for 2019 was 8.7 percent, but the exchange noted that it would only have been about 5 percent without the elimination of the individual mandate penalty at the end of 2018 (California implemented its own individual mandate and penalty as of 2020).

2020: Increase of 0.9 percent: Insurers in California’s individual market finalized a weighted average rate increase of 0.9 percent, which was the lowest the state has seen since ACA-compliant plans became available in 2014.

2021: Increase of 0.6%: Covered California’s individual market insurers proposed an overall average rate increase of 0.6 percent for 2021, and the rates were approved essentially as-filed. This amounted to a record-low-rate increase for Covered California plans. And two of the insurers — Oscar and Anthem Blue Cross — expanded their coverage areas for 2021.

Conclusion

There is a very direct correlation between the cost of health care and the premium rates needed to pay for that care. While the ACA made major changes in the regulation of health insurance in the United States, it did little to address the underlying problem which is the increasing cost and utilization of health care products and services.

In my opinion, one of the best things that has happened since 2000 has been the implementation of the Medicare Modernization Act (MMA) which changed the way health care providers were paid by Federal Medicare program. Prior to the MMA, less than 50% of health care providers accepted Medicare payments, while today more than 90% of providers accept Medicare patients and the fees paid by Medicare.

This has led to some employers adopting a payment system called “Reference Based Pricing” which pays providers a percentage (generally greater than 100%) of the Medicare Fee allowance. While not a perfect solution to America’s health care cost crisis, it is step in the right direction for the employer-based health care benefit system.

Dave Fear
David L. Fear, Sr. RHU
Consultant/Partner
Shepler & Fear Division of Dickerson Insurance Services, An Alera Group Company