Group medical coverage rates continued to rise for employers of all sizes according to the fall Employee Benefits Market Survey by The Council of Insurance Agents & Brokers.  Once again, employers with 50 employees or fewer sustained the highest increases on account renewals while the larger employers with 501 or more employees experienced the smallest increase. 

 “In response to survey questions, brokers reported that 50% of small accounts (50 or fewer employees), 42% of medium accounts (51 to 500 employees), and 19% of large accounts (501 or more employees) experience rate increases of 11% to 15%.  In contrast, 41% of large accounts, 34% of medium accounts, and 16% of small accounts saw rate increases of 6% to 10%.”1  Larger accounts have consistently been able to keep group medical rate increases lower than the medium and smaller accounts over the past few years.  This trend is mainly due the economies of scale that larger accounts achieve with the larger amount of employees considered.  As evidenced below, the increases have flattened somewhat for the past year, generally increasing from 9% to 12% depending on the size of the account.

The survey also found that employers of all sizes are continually shifting more costs to the employees to help restrain overall healthcare costs.  This trend includes increasing the employee share of premium costs, raising deductibles and co-pays, and re-evaluating drug co-pays.  Only a small percentage of employers are eliminating group medical coverage all together in order to control costs.  Employers continued to explore health savings accounts (HSAs) as a viable plan option or even as a plan replacement.  “Survey respondents reported that 68% [of employers of all sizes] use it [HSA] as a plan option, 10% to replace an existing plan, and 22% for both.”1  Despite these responses to the survey, many brokers still feel that the cost savings achieved through using HSAs are not significant enough for consumer-driven health plans.  The complexity of the concept, the education curve for participants, and the inability to carve out prescription plans were also cited as reasons preventing employers from choosing the HSA or other plan alternatives to reduce the overall costs of group healthcare.

Group life rates, for the most part, remained unchanged or even declined in the past six months for most employers of all sizes due to aggressive pricing and underwriting.  “This softer marketplace was also cited for lower rates and longer guarantee periods, with momentum for packaging life insurance with other lines, including medical and disability.”1  According to the table below, group life rates have remained relatively flat or have even decreased since the spring 2003 survey.

“The Council of Insurance Agents & Brokers represents the leading domestic and international commercial insurance agents and brokers who write more than 80% of the commercial property/casualty premiums and administer billions of dollars of employee benefits accounts in the United States.  The Council conducts a benefits market survey twice a year, in the spring and in the fall, to track trends in the benefits marketplace.”1 

Industry Outlook

Group medical premiums continued to increase throughout 2006, but at a decreasing rate, according to The Council of Insurance Agents & Brokers fall employee benefits survey.  The largest increases continue to show up in the small accounts consisting of companies that employ 50 or fewer individuals.  Smaller companies do not enjoy the economies of scale that the larger companies benefit from, making it tougher to control group medical premiums.  Companies of all sizes have continued to fight the rising cost of group medical premium rates by implementing cost-saving strategies and passing more of the premium cost to the employees.  Higher deductibles and health savings accounts are among many alternatives that employers are exploring to keep costs down, but many companies are still experiencing an increase in premium of around 10%. 

Health care costs are expected to rise once again throughout 2007, but the increases are projected to remain relatively stable or even increase at a decreasing rate according to several sources.  One such source, Milliman’s fifteenth annual survey of Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs), anticipated that premiums could increase as much as 10% to 13% depending on group experience, contract negotiations, changes in cost sharing, and market conditions.2  The Segal Company surveyed managed care organizations, health insurers, pharmacy benefit managers, and third party administrators, all of which agreed that medical plan costs and prescription drug plan costs are likely to increase in 2007, but at lower rates than 2006.3  Employers will continue to explore alternative options such as higher deductibles and health savings accounts (HSAs) to ease the pressure of rising health care inflation and group medical premium rates.  The implementation of health and productivity management strategies is another possible outlet that employers will increasingly explore to hold down the costs of health care.  These strategies are being adopted by employers to encourage employees to stay healthy and recover more quickly from illnesses. 

As was the case in group health rates, larger employers with over 500 employees experienced more beneficial group life account rate changes.  The smaller companies also benefited from either flat or declining group life rates in according to the fall CIAB benefits survey.  Group life insurance rates will continue to hold steady or even drop throughout 2007.  Increased competition and improved underwriting practices over the years have caused a relatively flat rate curve over the last four to five years. 

Sources:
1.        The Council of Insurance Agents & Brokers Employee Benefits Market Survey, Spring 2006
2.        Milliman 2006 Group Health Insurance Survey, October 25, 2006
3.        The Segal Company’s 2007 Health Plan Cost Trend Survey