Medical Costs Driving Premium Increases

It comes down to this – if health care costs are not restrained, health insurers will have to continue asking state regulators for premium rate increases in order to cover claims made by their enrollees and remain solvent.

In Massachusetts, which served as a model for national health care reform, health care costs have not decreased, thus forcing insurers to ask for premium rate increases in order to cover their costs and remain financially viable.   Massachusetts also imposed rate caps on insurers for small business and individual policies, which has led to chaos and instability in the health insurance market.  Subsequent lawsuits have also contributed to the uncertainty of the health insurance markets.

Federal government data confirms that rising health care costs are driven by:

• Increased spending on hospital care, physician services, and prescription drugs.

The government data show:

• Hospital spending growth is projected to have accelerated from 4.5 percent in 2008 to 5.9 percent in 2009, as spending reached $760.6 billion.
• Spending growth for physician and clinical services is expected to have accelerated to 6.3 percent in 2009, up from 5.0 percent in 2008, with expenditures having reached $527.6 billion
• Prescription drug spending is expected to have grown 5.2 percent in 2009, an acceleration of 2.0 percentage points from 2008, and to have reached $246.3 billion

Health insurer profits are also not to blame for rising costs.  For the past six years, the percentage of premiums that went toward administrative costs and profits has steadily declined.

In addition, if you analyze 13 health insurance plan companies on the Fortune 500 list, the profit margin for these 13 companies averaged 3.19 percent for 2009 — for 2008 it was 2.3 percent for these same 13 companies.  This is not a large margin.

Medical costs must be restrained, and it will be up to health insurers to fight the increasing health care costs for businesses and families.