Typical Group Health Insurance Annual Increases

According to 2008 U.S. Census data, more than 255 million Americans are covered by some form of health insurance, and of those, more than 176 million people, or 58.5 percent, are covered by a group medical insurance program. Premiums for group health insurance rise every year, and it is nearly impossible for the average employer to estimate the size of the premium hike.

Geography

• A common misconception is that a group’s geographical location has a considerable impact on policy premiums. While it is true that certain areas of the country have a higher cost of living, health insurance price increases cannot be directly attributed to geography alone because the cost of services in a given location only partly affects premiums.

Group Size Differences

• Specific calculations are utilized for groups of different sizes, and the factors determining annual premium increases are weighted uniquely for small groups versus large groups. For health insurance issues, a small group is one consisting of fewer than 50 employees, whereas a large group consists of more than 50 employees. The average age of a small group is often an important factor in determining annual premium increases, and organizations with a higher percentage of older workers may experience more significant price hikes than companies with a larger workforce of young people. Large groups can opt to “self-fund” instead of purchasing a traditional “fully insured” plan, whereby the employer takes on the responsibility of paying employees’ medical claims as opposed to a health insurance carrier. Self-funded large groups must comply with state and federal health insurance regulations, but are also permitted to structure coverage in a manner inconsistent with other group health policies, creating the potential for inaccurate or extraneous calculations or estimations of average premium increases.

Group Premium Increases

• An AHIP report states that, according to a survey of over 761,000 small groups who offer health insurance coverage to employees, average premium increases have ranged from 7 percent to more than 50 percent annually over the past decade. The Kaiser Family Foundation corroborated these statements in their own report after surveying over 3,100 groups of varying size, and states that cumulative premium increases “have risen 131 percent while wages have increased just 38 percent” over a 10-year period from 1999 to 2009. Widespread differences in actual consumer experiences, paired with different actuarial computation techniques, makes it nearly impossible to realistically estimate a particular group’s premium increase from year to year, despite the average for all sized groups across the nation being 6.1 percent.

Potential Financial Problems

• The 131 percent rise in group health insurance premiums between 1999 and 2009 far exceeds both the average worker’s wage increases of 38 percent and national inflation of only 28 percent. If typical group health insurance premium increases continue at these historical rates, it may be impossible for most families to afford basic major medical coverage. While the national average for employer contributions toward employees’ insurance premiums is 74 percent, the reality is that small businesses pay significantly less than larger companies, and the trend is continuing. Employee contributions increased 128 percent over the same 10-year period, and will continue to rise proportionately.

Effects of Health Insurance Reform

• If left unchanged, it is plausible that more people will find themselves without health insurance as premiums become too expensive, causing additional financial burden on the state and federal governments, as well as the people, who will ultimately pay for charity care with taxpayer dollars. The health insurance reform laws passed in March of 2010 are intended to alleviate such scenarios and ensure that every American has access to decent healthcare via affordable insurance programs. The elimination of excessive premium increases and hidden taxes, plus the addition of new tax credits for companies offering health insurance plans, will hopefully stimulate the economy and satisfy everyone’s need for quality care.