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 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.

Some important tips on California health insurance rate increases

On average, the richer a health plan's benefits, the more the rate increases will impact it over time.  We have seen most no-deductible PPO plans disappear from the California health insurance market.  This has forced a trend toward high deductible PPO plans such as the HSA compatible plans.  These plans absorb less of the medical inflation since they are high deductible but more importantly, there is a built-in financial incentive for a person to take better care of themselves and manage their own healthcare more wisely.  Due to these two contributing factors, they should have a slower rate of health insurance premium increase.  There is somewhat of a disconnect between the very rich copay health plans and the underlying medical cost it is obscuring.  Of course, this finds its way to the member in the form of higher rate increases.

Carrier strength and its effect on rate increases

Your choice of health carrier can have a big impact on future rate increases.  The carrier's rates are directly affected by their ability to effectively contract with providers, manage their businesses well, and design plans correctly.  It's not uncommon for a carrier to launch a new plan at a very low plan comparable to other carrier's similar options.  Without fail, the plan rate skyrockets and/or the benefits change drastically.  Some plans are discontinued altogether.  Be careful to fall for such a gimmick.  Long term (and health insurance is a long term consideration especially at the individual family level), the better run carrier will be more stable.  The problem with going to a quick fix, lower priced plan like this is that you may be unable to switch plans if the rates go up significantly or benefits are change depending on your health.   An insurance term called "Adverse Selection" then kicks in.  Healthy people, who are able to change plans, leave the poorly designed plan which leaves an ever-increasing risky pool of people (who are unable to move).  This just drives the rate increase spiral further till the plan is in serious trouble.

You can get a good California health insurance carrier comparison which spells out our view on which companies to concentrate on.

Rate guarantees and increases 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 can be found on the market.  This means that if you are effective 2/1 and there is a rate increase, 3/1, the increase may not hit your plan till 8/1 (six months from your original effective date).   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.

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.