Health insurance inflation rate hits 5-year high
In April, the Consumer Price Index for health insurance jumped 10.7 percent over last year.
If it seems as if health insurance is going up faster in cost, that’s because it is. The inflation rate for health insurance hit a five-year high in April. It could be due to the rise in managed care, but also could owe some of the rise to a decrease in medical-loss ratios.
Modern Healthcare reports that although the other categories within the medical care services index, professional services and hospital and related services, rose just 0.4 percent and 1.4 percent, respectively, in April, the Consumer Price Index for health insurance jumped 10.7 percent over last year. That’s the largest increase since at least April 2014, according to a Modern Healthcare analysis of the U.S. Bureau of Labor Statistics’ unadjusted monthly Consumer Price Index data.
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Meanwhile, the CPI for medical care services in April rose 2.3 percent, while overall inflation increased 2 percent YOY. As noted by Modern Healthcare, however, the increase in price isn’t a reflection of premiums paid but ”retained earnings,” or what is left after claims are paid to cover administrative costs or profits.
Paul Hughes-Cromwick, an economist at Altarum, says that the probable cause of the rise in health insurance is the growth in managed care, including Medicare Advantage, Medicaid managed care and commercial insurance. Hughes-Cromwick also pointed to the rise in premiums exceeding the rise in claims payouts added to the inflation increase.
While the medical loss ratio indicates the percentage of every premium dollar spent on medical claims and quality improvement, and under the Affordable Care Act insurers have to devote at least 80 percent of premiums to them or provide rebates to plan members, ACA exchange insurers in the individual market boosted premiums beyond what was necessary last year.
Now they’re in the position of having to send out some $800 million in rebates, according to a Kaiser Family Foundation analysis, and insurers in the individual, small group and large group markets will be on the hook for a total of $1.4 billion in rebates based on their 2018 performance—thanks to declining medical loss ratios.
The eight largest publicly traded insurers posting net income of $9.3 billion in the first quarter of 2019.
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