Health Insurance Rate Expectations for 2011

Health insurance companies are seeing a trend in decreased utilization, which could mean lower rate increases 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.

Many businesses in the Chicago area are seeing similar increases and as a result more businesses are 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. If we are to believe that utilization will be down in 2010 from 2009, then expect rates to be slightly below this number next year. Keep your fingers crossed. Remember, stay healthy and be well!