Insurers price plans conservatively based on risky 2010 outlook

In its 21st "National Health Care Trend Survey," the firm analyzed responses from more 100 health insurers and HMOs, covering approximately 78 million people. Costs for managed care organizations are projected to increase by more than 10%, and are in line with trends reported in two previous surveys, says Harvey Sobel, FSA, principal and consulting actuary who directed the survey.

TREND SHOWS LEVELING OFF

"If we look at medical PPO trends-and that is probably the most common plan-in 1999, we saw a 9.8% trend, and it went up steadily until it reached 15.2% in the second half of 2003," Sobel says. "Since the second half of 2006, the trend for PPOs has stayed close to level, with annual increases ranging from 10.6% to 11.1% per year."

He also says that these figures include "an element of conservatism, since the insurance industry is using the trend to price their products, and they tend to be cautious about it. Once the rate is set, in some cases it is set for a year, and they can't go back and raise rates again."

In general, the cost increases are attributed to several different reasons, the report says, including:

The respondents did not reveal how much each of the factors contributed to the cost increases. Sobel doesn't see one single culprit but smaller pieces that add up to produce some of the trends. However, he says that unit-cost increases are a more significant factor than utilization increases, for example.

COSTLY REQUIREMENTS

Mandates also drive costs. For example, New York instituted a mental-health parity state law in 2006, and self-funded plans are subject to the law starting this year.

"That meant an increase from $65 per-member per-month in 2005 to $100 now, so it's a huge increase," Sobel says. "That's just for the mental health aspect of the insurance."

Another important factor is the current increase in COBRA enrollment, as a result of rising unemployment. COBRA enrollees tend to be higher cost than most, so insurers have reason to worry about costs related to product mix.

Buck conducts the survey twice a year, and the data collected during the second half of 2009 generally represents rates for late 2009 to the first part of 2010. Survey participation includes major insurers, such as Aetna, CIGNA and UnitedHealthcare.