Medical Insurance Premium Outlook for 2021
Written by Lauren C. Stuart
Executive Vice President
Welcome to 2021! About this time each year, our office provides a window into the insurance market in our region. After wrapping up a year that filled many with anxiety as both companies and employees navigated financial, physical and emotional challenges, understanding what lies before us feels all the more important.
Our team has been hard at work reviewing both national and local insurance trends, legislative changes, and initiatives on the horizon. This article will focus specifically on costs for 2021 and answer some of the commonly asked questions we receive from businesses regarding benefit design.
In future communications, we will share more on current and projected legislative topics.
What should we expect in terms of our healthcare premiums in the upcoming year?
First, we will look to recent history with the understanding that the impact of COVID-19 on insurance has yet to be fully realized. The Kaiser Family Foundation (KFF) report published in October 2020 provides valuable insight. The KFF report shares the survey results from hundreds of randomly selected non-federal public and private sector employers from January through June 2020.
Premiums rose an average of 4% over the previous year (22% over the last 5 years).
Average annual employee medical insurance premium is $7,470 ($622.50/mo)
Average annual family medical insurance premium is $21,342 ($1,778.50/mo)
Employers continue to pay most of the premiums paying on average 83% of employee coverage and 73% for family coverage. Percentages of coverage paid by employers does shift based on business size, proportion of low paid hourly workers and industry. To further refine these numbers based on your industry, the DOL Bureau of Labor Statistics is another great resource. Employer Costs for Employee Compensation - September 2020 (bls.gov)
Our Premium Observations
As our account managers review client renewal increases in our region during the 4th quarter of 2020 and the 1st quarter 2021, the increases depended in part on whether the business purchased fully insured or partially self-funded plans.
Fully insured clients in the mid-market averaged increases just under 10% across the board, with many being negotiated down to a number closer to 2-3%.
For employers with fewer than 50 employees, fully-insured age-based priced contracts saw increases closer to 2-3% for Quarter 1, 2021. This was down from the Q4, 2020 increases. Unfortunately, with the release of the age-based pricing for Q2, 2021, we are beginning to see increases rise to closer to 9%. This type of change from one quarter to the next within the calendar year is not typical and raises concern for what is to come.
Since fully insured medical plans are subject to the Medical Loss Ratio (MLR) rules under healthcare reform that limits the amount of carrier profits to either 80% or 85%, MLR rebates for the calendar year ending 2020 are likely again. To share some of the anticipated savings in advance of MLR rebates, some medical insurance carriers provided premium decreases for one or two months during 2020. Overall, this cap on profits will help to balance increases paid by businesses/employees in the 2021 policy year.
For clients using partially self-funded products including consortiums and level funded bundles from Aetna AFA or AllSavers, the premium changes from 2020 to Q1, 021 varied ranging from 0% to 10%. In addition, many of these groups anticipate a return of surplus from the 2020 policy year. This means, many of these businesses will benefit from a lower than traditional renewal premium increase as well as a return of unused claim dollars. In many instances, where a renewal package indicates an increase, our office has been able to negotiate rate relief. If you are trying to determine what your business might expect, reach out to your account manager or take a few minutes to review the carrier monthly reporting to monitor the medical plan’s performance during the policy year.
What is impacting these premium increases?
Overall, claims data indicates a visible decrease in the use of medical services during the second and third quarters of 2020. This decrease is a result of the cancellation of elective procedures and individuals deferring routine care. This makes sense when we consider the local stay-at-home directives. Data shows in Quarter 4, 2020, a return to a more traditional claims pattern.
What didn’t decrease? Care for medical conditions like cancer treatments and pharmacy usage. In fact, the use of prescriptions continued to rise during 2020. Typically, costs associated with pharmacy and chronic conditions are the most expensive. This might have offset any savings from other canceled services for some health plans.
Insurance carriers are trying to balance lower than typical claims spending in 2020 against the estimated cost of deferred care, administration of the COVID vaccine and expensive COVID hospitalizations in 2021.
These dynamics would lead us to the conclusion that premiums will continue to rise from 2020 to 2021. Businesses renewing medical insurance in the first quarter may fare better than those renewing later in the year as insurance underwriters continue to collect data and assess future costs.
How does a business prepare for another increase?
Historically, one of the key ways to control rising premiums is by shifting cost to individuals when they access the healthcare system through higher copays, deductibles or co-insurance.
It is common for individuals to have a deductible associated with their health plan. A deductible is the amount an individual owes for a service before the plan begins to pay. According to the 2020 Kaiser Family Foundation report, the overall average deductible for an individual is $1,644. However, employers with fewer than 200 employees average a higher deductible of $2,295. These numbers are similar to the 2019 Kaiser Family Foundation report.
Change for change’s sake, is not what we see or hear with regards to medical insurance. Business decision makers are keenly aware that the changes made to medical insurance policies directly impact employees. The goal is to create as much continuity as possible while maintaining cost control over one of the largest business expenses. With the turmoil of 2020, employers are concerned about shifting more cost or dramatically adjusting deductible for the upcoming policy year.
Premium negotiations and exploring other alternatives to control cost is increasingly important.
Should my business be fully or partially self-insured?
There are numerous considerations for determining if fully-insured or partial self-insurance is right for your business. It is important to understand what it takes to “get in” and “get out” of an insurance contract with self-insured components as well as your compliance responsibilities.
Self-insuring is a way for businesses overtime to better control the financial picture of their medical insurance through transparency, negotiation, and only pay for services needed. Taking the time to understand these types of arrangements can benefit the business and its employees as well as create longer term stability.
Overall, the majority of businesses with under 200 employees remain fully insured. Approximately 1/3 of businesses with under 200 employees self-insure to some degree. This number has grown from the previous year. The increase in employers selecting this option has in my opinion been due in large part to the lack of visibility into a fully-insured medical contract, unattractive plan designs and increased costs due to regulatory requirements. Once a business feels like they have fairly shared cost through premiums and deductibles with employees, the question becomes “What’s next” to control cost.
We encourage employers to explore these options and learn how it may or may not benefit them at least 3-6 months prior to the renewal date.
Our team can help you evaluate the options that are available to your business, navigate the underwriting process and assess if it is appropriate.
Sources:
Employer Health Benefits - 2020 Summary Of Findings (kff.org)
Employer Costs for Employee Compensation - September 2020 (bls.gov)