For many insureds, health insurance premiums have been increasing at a rate of 10 percent to 15 percent per year for the past few years. This increase has applied to all types of health plans and all modes of delivery (eg, employer-provided, association-sponsored, individual policies). A 10 percent annual increase, on a compounded basis, translates into a 160 percent increase over 10 years. Why is this happening?
The answer is not simple, because it is influenced by a number of issues. Price inflation is only one component of cost trend. Other factors also influence the cost of health insurance premiums.
The consumer price index measures the cost of goods and services in the United States. During 1999, the CPI increased by just 2.5 percent. The medical care component of the CPI, however, increased by 3.5 percent.
As we become more knowledgeable about health care services, the demand for services and products increases. This demand is the result of a strong economy, an aging population, and consumer advertising. In addition, the Internet is giving consumers more information about health care products and services, thereby having a positive impact on the purchase of health care.
New technologies in the health care field have greatly increased the use of health care services. The introduction of laser surgery, for example, has brought a large increase in the number of surgeries. In addition, the frequency and scope of heart bypass surgery as well as the use of magnetic resonance imaging and cancer-screening procedures are on the rise.
Although the intent of federal and state laws that expand eligibility and coverage for services is good, they generally result in higher insurance costs. The recently passed Health Insurance Portability and Accountability Act, for example, reduced and in some cases eliminated the pre-existing conditions limitations contained in most group health insurance policies. Certain conditions previously excluded are now covered, increasing costs. Similarly, the Mental Health Parity Act of 1996 expanded coverage for mental health services, with a corresponding increase in health insurance premiums.
The aging of the US population plus increased advertising and marketing have led to a growing use of prescription drugs and an enormous expansion of new products. The impact of these factors, along with increased prescription drug costs, has been substantial. In fact, prescription drug costs have been the most significant trend component, accounting for an average increase of more than 20 percent per year on their share of health care costs.
Also, pharmaceutical companies are doing extensive marketing on a number of new brand-name drugs, which has resulted in consumer demand, and usually a lower-cost generic substitute is not yet available.
With these factors affecting health care costs, what can insureds do to reduce their health insurance premiums?
Managed care plans
At one time, all insurance companies based their claim payments on the same retail charge for a service. For example, a semiprivate hospital room-and-board rate was the same, regardless of which insurance company paid the claim. Similarly, the claim reimbursement for a doctor's office visit or surgical procedure did not vary significantly from carrier to carrier.
The health insurance plans being marketed today are managed care plans. This means that the primary cost component—the cost of the medical service—can be substantially different from carrier to carrier because of negotiated discounts between the insurance company and the preferred provider organization (PPO).
Because the savings from the discount could range from 10 percent to 60 percent, a PPO plan can save considerable premium dollars over a traditional indemnity plan.
Another way to reduce health insurance premiums is to select a higher deductible plan option if it is available. The premium savings between a $500 deductible and a $1,000 deductible plan, for example, could be more than $500 per year. When this is the case, why not take the guaranteed savings in premiums with the higher deductible and self-insure the difference?
AVMA's New PPO medical plan
To make health care insurance more affordable, the AVMA Group Health & Life Insurance Trust has made available a new PPO Option. Because a member selecting a PPO program agrees to use network providers and take advantage of negotiated discounts, the new option offers members and their covered dependents benefits similar to those included in the GHLIT Traditional Major Medical Plan, but at a lower premium.
GHLIT has selected the First Health Network as the preferred provider organization. First Health offers a comprehensive list of hospitals and physicians as its in-network health care providers across the country. Deductible options are $250, $500, and $1,000, and the plan includes co-payments for office visits and prescription drugs.
For more information about the new PPO Plan option, including rates, benefits, exclusions, limitations, and renewal provisions, please call the GHLIT Insurance Office at (800) 621-6360.