The price quote that employers see when setting up or renewing health insurance plans can often seem like a random number. Insurance companies put an amazing amount of research into their premiums, though, with influences coming from the company's demographics as well as society at large.
Benefit costs come from two main sources:
1. Company demographics
Insurance companies begin by looking at the actual employees and family members on the health plan; the higher the utilization (a company with a lot of sick people for example), the higher the benefit cost. Many factors are taken into consideration, including:
- Age. Older enrollees may be charged up to 3x more than younger ones on the plan.
- Group size. Larger companies may have more insulation from cost increases.
- Location. Some geographic areas are more costly than others
- Tobacco use. Insurers can charge tobacco users up to 50% more.
National trends have a great impact on insurance costs as well. Insurance companies look at several areas to predict future trends and set current costs:
- Cost inflation in the price of medical products or services
- Utilization of those services by the insured person
Even if your company is extremely healthy, the nation's medical cost trends can still account for an increase.
Slowed cost growth
Surprisingly, medical cost growth is slowing in 2016, according to a PriceWaterhouseCoopers (PWC) report. This slowed rate of growth is likely connected largely to changing benefit plan designs away from low-deductible/high-cost models in favor of higher-deductible/lower cost ones, such as those that can be combined with tax-free Health Savings Accounts. This cost shifting puts more responsibility on employees to manage health costs and make informed choices, a move that's greatly impacting those medical cost trends for the better.
Technology also plays a part in slowing health care cost increases. When it was first mandated that personal health records be kept online to allow for complete and portable histories, the initial cost was a factor in increased spending. The initial investment in technology, says PWC, is paying off now in reduced operating and recordkeeping costs. Virtual care is also expanding, allowing patients to receive care virtually online or via phone at a reduced price.
For more information on cost-saving benefit strategies for your company, please contact Nextep's benefits experts.