Rate guarantees by market segment for California health insurance

Depending on the market segment (Individual/Family, Small Group, Medicare Supplement), the carriers may offer rate guarantees for new enrollees.  For individual or family health insurance, 6 month rate guarantees for new enrollees is typical with most major health carrier.  This means that if you are effective 4/1 and there is a rate increase, 5/1, the increase may not hit your plan till 10/1 (six months from your original effective date).  Note that the guarantee is not from the time of the increase but from when your plan started.   If your effective date is 5 months before the official rate increase, you may only one month of guarantee.  The goal of the guarantee is so that a person does not enroll based on one rate and then is hit immediately by another.   Small Group health plans can offer new groups 12 month rate increases depending on the carrier, special promotions, and the size of the group.  Medicare supplement plans typically do not have rate guarantees.  If you are effective 2/1 and the increase is 3/1, your rate will likely go up 3/1 with the rest of the members.  Keep in mind, these rate increases are separate from age specific increases from moving into a new age band.  Health insurance rates is based on attained age.  This means that you do not "lock in" rates based on your age at the time of enrollment.  Life insurance is different.  There is a savings in obtaining Life insurance at an earlier age rather than later.  With health insurance, your rate will rise as you enter a new age band (typically five years) or an annual renewal rate increase regardless of when you bought the plan.  The rate guarantee just delays the impact of the annual renewal (not the age specific increase). 

When rate increases do occur, run a quick quote from www.calhealth.net to see if there are better (or newer) options for you, your family, or your company.  Plans and options are constantly changing and we can help you compare your current health insurance coverage versus what the market now has to offer.  On average, newer plans tend to have better rates since there is not a great deal of claims experience yet within the risk pools that you are grouped within.

What to expect in terms of future rate increases for health coverage

Let's first look at what has occurred historically and then try to evaluate rate increase trends going forward.  The past has not been kind to California individuals, families, or Small Group members.  Medical inflation has spiraled in the California market (and nationally) since about 1993.  Primarily driven by brand-name drug utilization/cost and the escalating cost of facility-based health care (hospitals, surgi-centers, etc), we have seen double digit rate increases since then.  It is less shocking now as people are somewhat expecting the increases but it was a shock during the initial few years.  The increases applied most aggressively to the individual family health insurance plans than to Small Group but both were affected.  Medicare supplement plans also underwent increases annually but at a smaller clip since Medicare was absorbing 80% of the underlying medical costs.  The increases occurred at least once per year (sometimes twice depending on the carrier and the year) at double digit increases (sometimes ranging 20-30% in a given year).

Going forward, we can expect recurring increases but hopefully at a slower clip than during the past.  We have now started to see high single-digit health insurance rate increases (around 9%-12%) on average.  Keep in mind that a given area, plan, or age band may increase more or less than the average depending on the claims to that risk group during the preceding period of time.  There have been cases where a given age-band, area, and plan stayed the same or actually decreased as claims experience was low for that group.  It's important to understand what drives the costs of California health insurance.   The increases typically happen at a certain time of the year.  For example, Blue Cross of California usually has their increase for Individual health insurance March 1st with Small Group following May 1st.  Blue Shield used to have their increase January 1st but starting in 2008, they may be pushing it out to later in the year (likely early to mid summer).  Health Net and Pacificare are less periodic in their increases although they tend to happen later in the year.  Ultimately, it's important to go with a strong carrier to long-term rate stability.  It rarely makes to switch carriers for a cheaper rate only to find it increase more later on.  If health changes, you may be unable to switch plans and your deductible/max out of pocket resets with each move to another carrier.

Timing effective dates for Rate Guarantees.

Usually, there is a great deal of activity or new enrollment right before a rate increase.  If you or your company needs insurance, why not try to lock in the lower rate by choosing an effective rate before the announced change.  Some carriers will allow effective dates on any day in the month.  If an increase is occurring March 1st, it makes sense to get a date in February (even February 28th) to lock in the older rate for as long as possible.  At calhealth.net, we try to notify people interested in California health insurance of the increase in case they want to try and get the earlier effective date.

Small group anniversary date and rate guarantees

Some health carriers apply rate increases on the anniversary of the group and not at the focal renewal (annual increase) date.  This can result in an even longer period of old rates than the 12 month guarantee.  For example, if a group's effective date is October 1st with a 12 month rate increase and the annual renewal occurs on May 1st of the following year, they will not get the increase until October of that following year.  Essentially, they will have 1 year and 6 months of the old rate.  There are obviously other considerations to take into account when choosing a company's effective date but this is a nice reprieve to rate increases short term.