This is a question I get all the time and for good reason. Over the last 8 years that I have been in health insurance sales I have had to present rate increases to my clients every year, ouch! This is not fun and I will be the first to tell you I dislike rate increases as much as anyone–after all I buy a personal health insurance policy for my family and get the same increases. So why do rates go up?
There are hundreds of reasons health insurance premiums increase year after year, so to simplify it I have narrowed them down to three: rise in the cost of health care delivery, high utilization, and artifically low Medicare reimbursements.
First is is important to understand that health insurance premiums are a shadow of the costs associated with health care since health insurance is a payer of health care. So when health care costs go up and people using the health insurance to pay for health care rises, so does your health insurance premiums. It costs a lot to deliver health care and the cost keeps rising but only about 3 to 4% a year (much less than the 11% average health insurance premium increase). These costs include a doctor’s overhead, malpractice insurance, investments in technology, and pro bono care. Health care technology is getting better every day but with those advancements comes higher costs and those costs are passed on to me and you usually through health insurance premium increases.
Utilization is a fancy word for using your health insurance. It’s fine to use your health insurance–that’s what it is there for–however, many people do not use it wisely. For example “over-utilization” is where consumers go to the doctor for every little cough or sniffle, choose not to get second opinions when recommended for a procedure, and other countless bad health care consumer situations. Another problem is that doctors tend to practice defensive medicine–meaning the perform numerous unnecessary tests and procedures in order to cover their behinds in case of a lawsuit. I have seen some studies that estimate that up to 50% of all tests and procedures are unnecessary. This is a huge burden on the consumer and those paying health insurance premiums.
Last but not least, artificially low Medicare reimbursements are a big problem. The Federal Government (Medicare) sets the price that doctors get paid from Medicare insurance (insurance for the elderly and chronically disable). Medicare has not increased what it pays to doctors to keep pace with doctor’s costs of doing business. Many doctors have retired early because they can not stay in businesses with the Medicare reimbursements so low. Other doctors will subsidize their loses from treating Medicare patients by negotiating higher reimbursements from privates insurance companies. Sometimes these reimbursements are 25% or more than Medicare reimbursements. So what does that mean to you? Since you most likely pay health insurance premiums to a private insurance company your rate reflects a high premium due to the cost shift from Medicare. Simply, you are paying at least 25% more than you should be paying. To fix this Medicare needs to increase their reimbursement to the docs that accept Medicare to the same levels private insurance pays. This will better equalize the premiums and you will not be carrying more than your fair share.
So how do we fix it so our premiums stop increasing? I will give you my opinion to the question in another post. Until then, do your best to be a good health care consumer and pray our system changes for the best.
