Trends in healthcare premiums, plans and consumer utilization may indicate potential changes for the profits of health plans.
According to an analysis by Aon Hewitt, average healthcare premium increases are bouncing back up after a period of muted growth, patients are using healthcare services more after a period of backing off and more employers are shifting to consumer-driven health plans (CDHPs).
In 2013, the healthcare premium rate increase was the lowest in more than a decade at 3.3 percent compared to 4.9 percent in 2012 and 8.5 percent in 2011, the human resources consulting firm said in a recent news release.
But that is changing in 2014, Aon Hewitt noted. Large employers and their employees will see average healthcare premiums increases bounce back up to earlier trends of 6 percent to 7 percent.
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A number of factors that tamped down premium increases in the past two years, including uncertainty around health reform and the continued weak economy, will not continue, said Tim Nimmer, chief healthcare actuary at Aon Hewitt. Also, employers and insurers will be subject to new transitional reinsurance and health industry fees.
“With the lagging economy, utilization dropped significantly more than any of us anticipated,” he said. “When you look at insurers’ profits and the reserves for self-funded plans, the reason that they have been so healthy is because of that utilization component being lower than expected.”
With fewer unknowns about healthcare reform and the economy starting to come back, there are early indications that utilization is also coming more back in line with historical averages.
[See also: Employers brace for cost increases]
One of the other factors in decreased use of healthcare services was the recent shift to consumer-driven health plans (CDHPs), which have overtaken health maintenance organization (HMO) plans as the second most popular plan option offered by employers, the Aon Hewitt analysis said. Increasingly, employers are offering CDHPs as the only plan option. Although 10 percent of companies do so currently, another 44 percent are considering it in the next three to five years.
“With the increase in consumer-driven health plans, technically you will see a fairly large change in utilization that first year and possibly going into the second year, then utilization will creep back up after a year or year and a half to normal levels,” Nimmer said. “It just takes a while for plan participants to understand how the program works.”
For hospitals or physicians, their view of the effect on utilization is how much a person engages in the system or shows up at the doctor’s office.
But for health plans, “if it’s a fully insured plan, they will profit heavily in that first year or year and a half when utilization drops so quickly, and then in subsequent years, you’ll see the trend start to return to the industry level unless they implement strategies, such as higher deductibles, or other ways because the leveraging component of a high-deductible health plan is so much stronger than a traditional PPO,” Nimmer said.