We’re starting to see rate increase requests in various states, with some good data coming out of Connecticut recently.
These initially proposed rates are for the individual and small group markets, which are filed with the state as part of the ACA.
Overall, the rates filed for 2022 are higher than last year. Let’s dive into the numbers and then discuss the increases.
Small-Group Health Insurance Rates for 2022
The average proposed individual rate request is an 8.6 percent increase, higher than 2021’s 6.3 percent. The range is from 5.1 percent up to 12.3 percent.
In the small group market, the rates are higher.
For small group rates, the average proposed rate request is a 12.9 percent increase, higher than last years 11.3 percent. The highest rate increases for on exchange small group plans were a whopping 18.5 percent and 23.5 percent for the two carriers in the market.
For off-exchange small group rates, the highest rate increases were 23.6 and 22.2 percent, also significant.
Keep in mind that in Connecticut, small group is defined as employers with 50 or fewer workers. In California, the threshold rises to 100 or fewer, which may result in different ratings because the dynamics change once we include groups with between 50 and 100 employees.
Implication of Rising Rates for Small Group Health Insurance
To put these numbers in context, the Rule of 72 states that premiums will double in 3 years if they rise by 24 percent every year, and double in 4 years if they increase by 18 percent each year.
In this situation, we find that small groups usually only know of a limited set of options to address rate increases:
- Switch to cheaper plans, with worse benefits
- Ask employees to contribute more to their coverage
- Absorb the cost increases completely
None of these solutions address the underlying financial levers that lead to increasing premiums. Rather, they just shift costs around between employer and employee.
Impact of COVID on Small Group Health Insurance Rates
Carriers provided commentary alongside their rate increases, citing three explanations.
The first is Medical Cost Trend, the increase in health care costs, as discussed in a previous post looking at research from PwC and Milliman. PwC pegs this increase for 2022 at 6.5%.
Second, the carriers point to legislation in the state that increases their costs to deliver benefits and healthcare to enrolled members. This includes new co-payment laws and benefits for diabetes-related claims and care.
Finally, the carriers point to COVID. The carriers are filing these rates just as the Delta variant (and Gamma, and Iota, and Lambda, etc.) is increasing throughout the U.S., particularly in the midwest and southern states, where there is a higher rate of unvaccinated persons.
Insurers expect to see more claims and are looking to reimpose cost-sharing for COVID treatment. For example, Kaiser Permanente is ending their $0 cost share for COVID treatment on July 31st, 2021.
They also expect to see more severe claims, due to members with delayed or deferred care, checkups, and treatment. Pent-up demand for care and increases in behavioral health diseases are also expected to contribute to greater claims costs.
Identify and Address Financial Levers to Reduce the Cost of Employee Health Plans
Small group health insurance rates can be quite volatile, due to carriers’ inability to screen risks via underwriting, lack of risk spreading due to the smaller average size of a group, and adverse risk selection.
Small group rates have a number of components, including:
- Claims Expenses
- Premium Taxes
- Required Benefits
- Risk Pooling
- Administrative Costs
- Overhead & Profit
The key to reducing the cost of employee health plans is to address claims expenses directly and by paying less for better healthcare, many other expenses can also can be avoided. This includes premium taxes, required benefits, profit to the carrier, and a reduction in administrative costs. Additionally, risk pooling (the insurance) can be purchased much more efficiently.