Insurer Medical Expense Growth Slows Dramatically
By Gavin Magor, Weiss Ratings Insurance Analyst | June 29, 2011
Earlier this year, we projected there would be little or no rise in health insurer medical costs for the full year 2010. The results are now in, and it is safe to say that the double-digit annual growth in medical expenses of the past ten years is over. This means that insurers will have a much harder time justifying large premium rate increases, and consumers and employers should get some relief.
Overall medical expenses increased a mere 1.7% industry wide while enrollment stayed flat. On an average per member basis, medical expenses increased only $74, or 2.2% to $3,491 in 2010. This is a dramatic slowdown in the growth of medical expenses for the first time in ten years.
We reviewed the six major lines of business—comprehensive group, comprehensive individual, federal employee, Medicare supplement, Medicaid, and Medicare—reported by 586 health insurers to their state regulators. We found that medical expenses fell during 2010, on a per-member basis, for both federal employees and those with individual policies despite increases in enrollment in those lines.
On an average per-member basis the cost of providing health care to members in the federal employee plan fell $210, or 5.1%, to $3,880. Those with individual plans experienced a smaller decrease of $21, or 1.0%, to $2,087.
The Medicare supplement insurance and Medicare lines of business experienced small increases of 1.7% and 1.8%, respectively.
The largest increases occurred for Medicaid and comprehensive group coverage. While total medical expenses for Medicaid increased $5 billion, or 11.5%, and enrollment increased by 1.6 million, per member expenses increased only $59, or 2.4%, to $2,491.
The opposite occurred in the comprehensive group line where total expenses declined $5.3 billion, or 3.5%, due to a decline in enrollment of 3.3 million. But per member expenses increased $118, or 3.7%, to $3,295.
What does this all mean? While different types of insurance coverage vary in their efficiency and cost to cover enrollees, the bottom line is that drastic cost increases seem to be a thing of the past perhaps bringing relief to both employers and consumers.
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Gavin Magor, senior financial analyst at Weiss Ratings, has more than 25 years of international experience in credit-risk management, insurance, commercial lending and analysis. He leads the firm’s insurance ratings division and developed the methodology for Weiss’ Sovereign Debt Ratings.