As we come to the end of the rate renewal season for employer sponsored health plans, it is interesting to look at differing projections on where final 2015 insurance prices will land. Segal Co. does an annual survey of health insurance actuaries to get their projection of medical cost trends in the coming year. In the Segal survey, health insurance actuaries projected medical cost trends for 2015 of 7.8 – 7.9%, with some regional variation. Presumably, these trends would be reflected in 2015 prices.
However, four surveys of employers taken in mid-late summer of 2014 showed that employers expect health insurance costs to rise between 5.2% and 6.8%. A Towers Watson survey of 379 employers found an average expected increase of 5.2% before benefit plan changes. Mercer’s survey of 2,569 employers showed average expected increases of 5.9% if no changes were made to benefit plans (in either benefits or relative employee contributions). The National Business Group on Health surveyed 136 large employers who expect average increases of 6.5%. Price Waterhouse Coopers (PWC) interviewed insurance executives and surveyed 1,000 employers. PWC blended these sources to estimate increases of 6.8% before benefit changes.
How can these differences between actuarial trend assumptions and expected price increases be reconciled? The Segal survey has part of the answer. When the estimates of actuaries are compared to actual trends in past years, health plan actuaries have been overly pessimistic for the past 5 years, by 1-3% in each year. This overestimation of trend is probably due to the fact that actual health cost trends have been declining. Actuaries have a natural tendency to expect a return to form in health inflation and have bet against the continuing downward trend. The PWC estimates were drawn in part from interviews with actuaries, which may explain why PWC’s estimate is higher than estimates drawn from employer surveys alone.
While actuaries generally have a very large role in health plan pricing, they are not the only voices at the table. Senior management may overrule an actuarial projection in pricing for other strategic reasons, such as growing or maintaining market share. Or senior management may simply believe that trends will continue to be low. So, actuarially projected trend may not be fully reflected in pricing.
At the same time, larger employers, who are either insured, but fully credible, or self-insured, are looking at the lower trends and probably predicting that the low trends will continue. For self-insured employers, the 2015 budgeted cost will be a judgment call between the projected trend provided by the health plan actuary and the intuition of the employer’s benefits and financial management staff. Finally, in some states with tighter insurance price regulation, the regulator may not allow the full pricing of actuarial trend predictions.
The true cost of health benefits for employers in 2015 will, of course, be different than any of these numbers because employers will make benefit plan changes. The National Business Group on Health predicts health plan costs will rise 5% after benefit changes. PWC estimates a 4.8% net increase, Mercer predicts a rise of 3.9% and Towers estimates a 4% change after plan changes.
What is my guess? I expect actual health benefit cost for employers to go up by about 5% in 2015. Why? Because health plan actuaries will get some of their expectations built into rates, but employers will make enough plan changes to get their budgets in acceptable shape. Check back later in 2015 to see if I am right!
Paul von Ebers
Prospective Health, LLC
- 2015 Segal Health Plan Cost Trend Survey
- National Survey of Employer Sponsored Health Plans 2014, Mercer, November 19, 2014
- Medical Cost Trend: Behind the Numbers 2015, PWC, Health Research Institute, June 2014
- National Business Group on Health survey of 136 large employers, June 2014
- 2014 Health Care Changes Ahead Survey, Towers Watson, September 2014