Have you noticed your health insurance premiums increasing 10-20% a year over the last few years? Unfortunately, these dramatic rate increases over the last few years have been the norm. For the Los Angeles region alone, we saw a 13% weighted average rate increase for the individual health insurance premiums in 2018. The Department of Labor recently reported that medical inflation since 1960 is triple the overall inflation which is clearly unsustainable. “Why?”, you may ask. For one, there is little in the way of medical cost transparency and price controls and insurance companies have to negotiate with the providers on their payouts.
There is some good news coming out of the Department of Labor that suggests rate increases should be substantially lower for the coming years. The Department of Labor recently reported that medical inflation has increased at only 1.8% for the last 12 months through February 2018 compared to the overall 2.2% inflation. This is in sharp contrast to the year prior where medical inflation was roughly double that of the total inflation.
This sudden disinflation for medical services can be attributed to a few major factors. For one, the aging baby-boomers are moving into Medicare, leaving much of the commercial marketplace. Medicare has even more control over medical prices as they manage care for over 50 million Americans and can pay as little as half of what commercial plans may pay depending on the service.
Furthermore, we may be seeing a gradual dis-enrollment of Medicaid and California’s Medi-Cal members as the economy improves and we maintain full employment. Medicaid has been over-enrolled with members who do not actually qualify for Medicaid yet as they report their income to their case workers, many will be kicked out of the system and participate in commercial insurance. With more healthy members participating in the commercial market, premiums should be more stable.
With medical cost increases slowing, we must also acknowledge how costly health insurance has gotten as of late. Clearly, 10-15% rate increases every year is simply not sustainable. Furthermore, the state and the federal government would be required to continue paying more and more in subsidies to on-exchange subsidized members such as through Covered California, continuing to take a bigger and bigger share of the government’s budget.
Many services, especially in the technology industry, are seeing disinflation. When we think about Amazon and other big names, we often think about them utilizing economies of scale to lower the costs of goods. As some analysts suggest, Amazon may jump into the pharmaceutical industry. Don’t forget about the healthcare partnership between J.P. Morgan, Berkshire Hathaway, and Amazon who have partnered to create their own independent healthcare system for their employees. The eventual success and cost savings of this partnership is uncertain. Clearly, when employee earnings are going up roughly 60% since 1999 while while medical costs have risen over 250% during the same period, big and small companies alike will ask themselves how they can cut down on costs.
If you are a business owner and you want to look at your benefit options, we at Solid Health Insurance Services are here to help you find affordable plans that fit both your budget and medical needs. For a free plan comparison from all the major insurance carriers, contact us at firstname.lastname@example.org or by calling us directly at 310-909-6135