Rising Rates Put The Squeeze On
The Health Insurance Industry
Big health insurers with the cash to buy new computers may overpower smaller insurers in 2002.
What Your Peers Are Reading
Big plans “are making significant investments in systems capabilities to give them a competitive edge,” according to Standard & Poors Ratings Services, New York. “These plans have the critical mass and the financial wherewithal to make these significant investments. Smaller plans do not and will become progressively less competitive.”
Health insurers once equated “increasing efficiency” with “cutting broker commissions,” but they now say brokers can help customers sort through the changes. Brokers “are in a great spot,” says Michael McCallister, president of Humana Inc., Louisville, Ky. “Theyre the representative of an employer on a lot of different issues.”
Today, brokers are helping employers absorb the fact that major medical prices have increased at double-digit rates for the third straight year.
Towers Perrin Inc., New York, estimates the average of cost of individual coverage at big companies will increase 13% in 2002, to $2,736.
That compares with an increase of just 4.5% in the federal medical care cost index, and an increase of 6% in the cost of Towers Perrin customers dental coverage.
“Employers simply cannot afford to continue to absorb double-digit health care cost increases,” warns Jack Bruner, a health care consultant at another benefits consulting firm, Hewitt Associates LLC, Lincolnshire, Ill. “Some smaller and midsize companies may not be able to afford to provide health care coverage if rate increases continue at this pace.”
A few years ago, employers could escape increases in the insured market by setting up self-insured plans.
Today, the health reinsurers that protect self-insured plans against the cost of heart-lung transplants and massive flu outbreaks are skittish. Because reinsurance claims costs have been so high, the market for reinsurance for managed care companies is hard.
The market for protection for self-funded plans “is even harder than the managed care market,” says Ward Humphreys, a health reinsurance broker in the Blue Bell, Pa., office of Evergreen Re.
Humphreys described a self-funded plan with 1,000 members that exceeded a claim limit in its stop-loss agreement by $11,000.
When the company tried to renew the agreement, the rates went up 70%.
Benefits brokers see signs that many customers are still willing to pay extra for what they believe to be better, more flexible coverage.