The Reasons Behind the Rate Increases - And How to Overcome the Challenges They Present

It’s that dreaded time of the year: renewal time. What will your client’s health insurance increase look like? Fifteen percent? Twenty percent? More?

Premium increases are a fact of life for health producers and consumers in the 21st century. In the Agent Media 2010 Health Market Study, 36 percent of agents said rate increases were one of their main challenges with selling individual health insurance, making it the No. 3 sales challenge this year. We expect double-digit increases, and our clients expect them, too. As with any aspect of selling insurance, it is the producer’s responsibility to act as educator for their clients so they can understand why premiums consistently rise at such a high rate. Only then can we sit on the same side of the table as our clients and work together to find an affordable solution for their needs.

So what makes premiums rise at two, three, and even four times the rate of inflation? Despite the health care reform media barrage, insurance company profits are not the culprit. Instead, three major components are conspiring to increase premiums: Technological innovation, consumer demand, and cost-shifting from government programs to commercial insurers.

1 Technological innovation

Every day in our advanced scientific world, a medical breakthrough occurs. Each of these new technologies and medications has a tremendous cost. Each new brand name drug can cost 10 to 20 times as much as a generic drug that treats the same illness. Fifteen years ago, if you twisted your ankle, your doctor took an X-ray. If nothing was broken, they would wrap it in an ACE bandage and tell you to stay off your leg for a week. Now, you are immediately referred for an MRI at a cost of $500 to $3,000, depending on the facility. Often, the medical outcome is the same, but the cost is passed on to each of us in higher premiums.

2 Consumer demand

As far as consumer demand being a driver of higher costs, put yourself in your clients’ shoes. We all want lower costs, except when it is our own health at stake. We all say “lower costs,” as long as our procedure is approved. At the pharmacy counter, we say “lower costs,” as long as the pharmacist approves the doctor’s script without question. We all say “lower costs,” as long as the facility we need to visit is in-network and approved.

Until we as Americans are willing to make some tough choices and be flexible about how much care and access to care we are willing to compromise, costs will continue to rise. We can’t all have Rolls Royce health care, unless each of us is willing to pay for and able to afford Rolls Royce health care.

3 Cost shifting