Trends in the Cost of Utah Health Insurance

Trends in the cost of insurance.

Utah's comprehensive health insurance premium premiums are increasing at a significant rate. For example, from 1999 to 2007, the average premium per member per month for comprehensive health insurance has increased on average about 9.2 percent per year. In 2007, the average premium per member per month for comprehensive health insurance was 6.3 percent higher than in 2006. Utah's rate of increase, in comparison with national employer data, appears to be following a national trend. This suggests that Utah's health insurance market is experiencing similar cost pressures as other parts of the country.

One of the main causes of the trend towards higher premiums is a steady increase in the underlying cost of health care. Utah's health care costs, like the United States as a whole, have increased at a significant rate. For example, from 1999 to 2007, the average losses per member per month for comprehensive health insurance has increased about 7.8 percent per year. In 2007, the average losses per member per month for comprehensive health insurance was 5.7 percent higher than in 2006. Nationally, these costs are being driven by a number of factors, particularly increases in pharmacy and hospital costs (Strunk, Ginsburg, & Gabel, 2002; Strunk and Ginsburg, 2003; Strunk and Ginsburg, 2004; Strunk, Ginsburg, & Cookson, 2005; Ginsburg, Strunk, Banker, & Cookson, 2006). Government mandates, increased consumer demand, litigation, and new technologies also appear to be important factors (PriceWaterhouseCoopers, 2002; PriceWaterhouseCoopers, 2006).

The rising cost of health care creates significant economic pressure on comprehensive insurers. For example, if Utah's comprehensive insurers had kept premiums at 1999 levels and costs had continued to increase, by 2007, the industry's loss ratio would be approximately 164. In other words, the industry would be paying out nearly $1.64 in claims for every $1.00 in premium. No business can afford to lose money at such rates for long, so comprehensive insurers responded by raising premiums to levels that would cover their costs.

In addition to claim costs, comprehensive insurers also have to pay general administrative costs such as general business expenses and the cost of processing claims. Furthermore, commercial health insurers are also required by state law to maintain adequate financial reserves and to remain financially solvent. This is because commercial health insurers are selling "a promise to pay in the future." When a consumer purchases a health insurance contract, they are buying a promise to pay for future health care costs under certain conditions. Insurers cannot pay claims on behalf of consumers without adequate funds to do so.

For Utah employers and consumers, this trend towards higher premiums means that health care is getting more expensive. For a single individual, the average premium per member per year increased from $1,212 in 1999 to $2,448 in 2007. This is an increase of over 100 percent over the last nine years. Both consumers and employers are being impacted by this increase. In most cases, employers pay a significant portion of this premium. Nationally, employers pay more than two-thirds of the premium cost (Kaiser/HRET, 2008). However, many employers are responding to the rising cost of health care by increasing the employee's portion of the premium, reducing benefits, or looking at new plan designs such as defined benefit plans. These changes may be difficult for many consumers to accept because the rate of increase in consumer income has not kept pace with the rate of increase in premiums.

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