Why is my Extended Heath Care plan always getting more expensive?

Good question little Johnny, come sit on my knee and I will tell you a story.

Health Care is getting more expensive, therefore the insurance you buy to protect yourself from unexpected health care claims is also getting more expensive. In the insurance industry we call the rate at which health care costs increase a Trend Factor. Over the past 5 or so years, the Trend Factor has been about a 15% increase per year, every year. Costs are doubling approximately every 4 years. That's the "how much" part, for the "why" bit see one of my articles below.

What is a TREND FACTOR?

Trend factors are used when insurers are trying to forecast future costs. Most commonly you will see these at the annual policy renewal when the insurer is trying to determine the appropriate rates for the upcoming year.

Trend factors play a vital role in pricing any group. They take into account a few main factors.

Inflation: The inflation component of a trend factor refers to the increases in the cost per service. For example,

Ø  Escalating ingredient costs, rising research costs, and growing dispensing fees changed by pharmacies have an inflationary effect on drugs.

Utilization: An increase in utilization is an increase in the number of services used per plan member. For example,

Ø  Massage therapy claims are now the second most claimed part of healthcare next to prescription drugs. Five years ago, it was one of the least claimed benefits.

Aging: As the population ages average utilization is generally expected to increase as more treatments and prescriptions are required. For Example,

Ø  A 35 year old plan member claims for 11 prescriptions per year on average, compared to the average 55 year old who claims for more then 25 prescriptions per year.

Changes in Health Services Environment (including legislative changes): Cost shifting from Provincial plans places more pressure on private insurance plans and these costs need to be taken into consideration. Each year sees more offloading onto private sector plans. For example,

Ø  Eye exams are no longer covered by the provincial medical plan for anyone ages 19 to 64. Private plans are picking up the slack where before they didn’t need to provide coverage.

Ø  Hospitals are providing more outpatient treatments such as day surgeries which means costs that would have previously been borne by the hospital (i.e.: prescription medications) are now the employees responsibility and are being claimed on their group insurance.

Deduction Erosion: Year over year a fixed deductible does not keep up with that of average costs increases; as a result the proportion of costs paid by plan sponsors increases each year. The cost of providing the service keeps rising, but the deductible amount required from the employee doesn’t keep pace.

So there you have it Jimmy, Johnny, whatever your name is. Aging, government cutbacks and a general increase in the cost of medical care are all conspiring to increase health care costs. Now go play outside and try not to scrape your knee, our premiums are high enough as it is.