UBS released its 2018 Large Employer Health Benefits Survey and the results are encouraging. Premium equivalents for this largely self-insured study group are expected to rise 6.1% on average from 2017. Interestingly, the shift to high-deductible plans and the increase in non-premium cost-sharing are expected to stabilize.
Makes sense – the economy is improving and employees are reaching the tipping point on how much they are able to pay; both for their share of premiums taken out of their paycheck as well as out-of-pocket expenses for provider services at the time care is rendered.
In the middle market, I have found that the 2018 renewal season is shaping up to be gentler than last year. Except for some unusually large increases due to extraordinary high claim activity, renewals have been in the single digits for most of our self-insured clients. Although, on the fully-insured front, as Adam Okun wrote last week, the reemergence of the Health Insurance Provider Fee, which was established under ACA, will contribute approximately 3.25% to renewal increases.
Another driver some clients have seen is the impact of leveraged trend. If a plan has a $5,000 deductible and medical costs are $12,000 per person in 2017, the employer pays $7,000 per person. Add 6% medical cost inflation for 2018 and the medical cost increases to $12,720. If there is no change to cost-sharing, the employee still pays $5,000 and the employer pays $7,720; which translates into an increase not of the 6% they expect, but rather just in excess of 10%. This leveraged trend concept also applies in a big way if a self-insured plan purchases stop loss coverage at the same deductible level in the renewal year.
Those clients experiencing larger increases, as is always true, have seen significant large claim activity. This seems to come in waves for most clients. It’s unfortunate if the wave hits your company – and although economy-driven cost pressures seem to be lessening, it is never pleasant to get hit with a large increase. Both employers and their employees feel the pain.
Smaller clients are experiencing even more pain. Guaranteed-issue coverage ensures selection against the insurance companies – healthier groups will gravitate toward less-generous plans with lower premiums and sicker groups will purchase more benefits. On top of that, the PEOs continue to extract the best risk with their ability to upcharge by age and health classification, which is not allowed in the traditional small group market. 15% or higher increases in that space can be expected and benefit levels will continue to erode.
We are beyond the tipping point with healthcare costs.