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Factors in Insurance Premiums


By CL   Follow   Fri, 1 Feb 2013, 3:02am PST   919 views   15 comments
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What are the various factors involved in determining insurance premiums? I've read recently about State Regulators denying requests from Insurance companies to raise them, but in California they said that the regulators could not deny a rate increase.

How much does the Federal Government weigh in on?

How does the process work? What are the steps?

Thanks!

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CaptainShuddup   Fri, 1 Feb 2013, 3:10am PST   Share   Quote   Permalink   Like (1)   Dislike (1)     Comment 1

Bend over, they will ram until it stops.

CL   Fri, 1 Feb 2013, 6:18am PST   Share   Quote   Permalink   Like   Dislike     Comment 2

Thanks! Would you say that Insurance is tightly regulated then?

And do California regulators have less authority than other states?

(Also, what would you say to the claim that ACA has resulted in increased premiums? That is prohibited by State law, or the ACT itself?)

Thanks

errc   Fri, 1 Feb 2013, 6:33am PST   Share   Quote   Permalink   Like   Dislike     Comment 3

here's how i see it CL, in reference to SFAce's example. If you are regulated such that you may only keep 5% for profits

$100 premiums
$ 65payout ratio incuding actuary study of deferred payout
$ 30 Operating expense
$ 5 profit
$ 5 return on investment equity.

then it is absolutely in your best interest to make sure that your payout ratio (60%) and Operating expense (30%) are as sky high as possible, so that the 5% profit is being extracted from your largest possible base of 100% (x). Which is why some would claim that PPACA would make things even more expensive. Because it will,,,,,,

The failed analogy i often see proponents use, is to auto insurance, as to being necessary, or worse yet, when people claim that PPACA will make it cheaper for everyone, because the supposed solution is to a phony problem. They claim that

100 people use healthcare
50 people pay for it

so currently, 50 people pay twice as much as necessary in order to cover the losses incurred from the 50 people that don't pay, yet still use services. By forcing the 50 non-paying users to "pay their fair share", this will reduce the burden on those of us that already pay for health insurance, wether or not we use those services being a moot point.

The reality of PPACA is, without any true price controls or new mode of competition, twice as many people will now pay in for the same services rendered, and the leeches will adjust accordingly with price of service increases. Then there will be the left winged goofballs that bow down at the honesty and usefullness of these fascist private health insurers, because they are merely making a 5% profit. THey will be RECORD profits when they are 5% of a much bigger number

CL   Fri, 1 Feb 2013, 6:46am PST   Share   Quote   Permalink   Like   Dislike     Comment 4

SFace says

As I said, the department of insurance will make you "rightsize" first before they allow you to increase rates.

So, how does that work with PPACA? Who regulates the profits there?

CL   Mon, 4 Feb 2013, 8:46am PST   Share   Quote   Permalink   Like   Dislike     Comment 5

errc says

The reality of PPACA is, without any true price controls or new mode of competition, t

Don't the Exchanges introduce competition?

CaptainShuddup   Mon, 4 Feb 2013, 11:57pm PST   Share   Quote   Permalink   Like   Dislike     Comment 6

CL says

Don't the Exchanges introduce competition?

What "Exchanges"?
Oh you mean that vague reference to some magical non existent entity that Obama pulled out of his ass while he was campaigning? With out even defining what an insurance exchange would be, operate, benefit anyone, or even work?
Or more importantly who would be the players.
I don't think Insurance companies are motivated to engage in a price war to set an affordable price point, not even if someone in Washington made a vague website with a .gov extension. DO you?

CL   Wed, 6 Feb 2013, 3:41am PST   Share   Quote   Permalink   Like   Dislike     Comment 7

CaptainShuddup says

What "Exchanges"?

You don't think they will set up Exchanges?

CaptainShuddup   Wed, 6 Feb 2013, 3:55am PST   Share   Quote   Permalink   Like   Dislike     Comment 8

Isn't the AT&T store just a cell phone excahnge?
Can you explain to me how that does Jack Squat to lower costs?

It's just another one of those sexy Political words like "Universal Health care" that everyone just Okeydokes but has no idea what it even means.
Even Miss "We'll have to pass it to see what's in it" doesn't even have a clue what it means.

curious2   Wed, 6 Feb 2013, 4:26am PST   Share   Quote   Permalink   Like (2)   Dislike     Comment 9

People seem to overlook that the insurance company can be part of the same holding company that also owns the hospital network and other payees. The payout/expense ratio is an internal accounting tool, not a measure of quality. The numbers can be easily manipulated. For example:

ABC holding company owns
XYZ insurance company and
123 hospital corporation.

ABC receives the profits from both XYZ and 123. ABC can control XYZ's payout/expense ratio simply by adjusting the prices at 123 hospital corporation. Raise the price at 123, and suddenly XYZ has a higher payout ratio that it can use to justify higher premiums and more profits. It's a shell game, with the net result being higher prices at hospitals and higher premiums for insurance.

And the "free riders" that divide & misrule politicians try to scapegoat are only 2% of total spending. If you shoot every last one of them in the head, capital punishment with summary execution right there in the ER, then you'd save a maximum of 2%. That's not even subtracting the cost of the bullets.

The purpose of the legislation was and is to generate more money and power for the lobbyists who wrote it and their clients, and the politicians they control. They can make you buy anything now, whatever they say is for your own good.

And, to my chagrin, it's the Democrats who did it. Just like the Viet Nam draft. They blame the Republicans, but in fact it was the Democrats in Congress who voted for it and the President signed his own name onto exactly the same plan he had campaigned against when it was called Hillary's Plan. You can blame Romney for Romneycare, but even there the MA legislature was 80% Democrats, and it was the Democrats who made a federal law out of it.

curious2   Wed, 6 Feb 2013, 4:32am PST   Share   Quote   Permalink   Like   Dislike     Comment 10

BTW, legislative factors that make insurance more expensive:
1) The federal Rx mandate that prohibits you from buying anything without buying permission first. People who visit Mexico find consistently that the total retail cost for whatever they need is lower than their insurance co-payment here, and they don't need to wait for a dr's appointment.
2) The federal insurance mandate that requires all policies to cover "mental health" (disproved SSRIs) equally with emergency care, as if Homeboy's disproved SSRIs were as valuable as setting a broken leg.
3) allowing Rx pills like SSRIs to be advertised DTC on TV, which enables PhRMA to control the evening news and advocate legislation like Obamacare. Other countries prohibit DTC ads for Rx drugs.

All these policies exist to maximize spending on the lobbyists' clients, the politicians' patronage networks, and end up in the insurance premium. A majority of actual medical spending is paid by/through government. Most of your insurance premium goes to administrative overhead, advertising, and other waste, fraud, and abuse. The most wasteful policy gets enacted because it leaves the most markup to pay lobbyists and politicians. A 2cent aspirin doesn't leave a lot of markup, but a $2 Vioxx creates a huge revenue opportunity.

CaptainShuddup   Wed, 6 Feb 2013, 4:46am PST   Share   Quote   Permalink   Like   Dislike     Comment 11

curious2 says

The purpose of the legislation was and is to generate more money and power for the lobbyists who wrote it and their clients, and the politicians they control. They can make you buy anything now, whatever they say is for your own good.

Give this man a prize.

Shabba   Wed, 6 Feb 2013, 7:45am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 12

I'm an Actuary and I actually set Health Insurance rates, so I will weigh in here. In short, the regulations and involvment of state and federal gov. vary by type of business (employer size, Medicare, Medicaid, Individual etc) and state.

I have worked a lot specifically with Medicaid and large group commercial. Federal government and state gov. heavily regulate Medicaid. The commercial plans are also highly regulated but the rules vary quite a bit by state and the federal gov. isn't involved so much. Here are some of the factors that affect rates:

1. Historical claims experience
2. Group size (number of employees for example).
3. Demographics (Age/Sex)
4. Occupation/Industry
5. Benefit plan design (cost-sharing, out of pocket max etc).
6. Mandated benefits

Those are probably the main ones, but there are more. It is true that the insurance commissioner (in charge or approving rate increase) has different levels of authority in different states. I don't think the federal government is involved at all in approving rate increases. When the mention rates increases like this they are talking about an entire block of business for one carrier. For example the 0-50 employees commercial segment for Anthem. Federal government is more involved in determining mandated benefits and the like.

CL   Wed, 6 Feb 2013, 8:49am PST   Share   Quote   Permalink   Like   Dislike     Comment 13

Thanks Shabba.

So, in your experience, are rates going up? When a State Regulator looks at the requests for rate increases, do they look at deductibles and coverage too?

Can they have an effective "backdoor" increase by denying benefits?

curious2   Wed, 6 Feb 2013, 9:15am PST   Share   Quote   Permalink   Like   Dislike     Comment 14

Shabba says

1. Historical claims experience

2. Group size (number of employees for example).

3. Demographics (Age/Sex)

4. Occupation/Industry

5. Benefit plan design (cost-sharing, out of pocket max etc).

6. Mandated benefits

Thank you for the list. #1 depends heavily on #6, for example since policies are federally mandated to include SSRIs advertised DTC on TV news to everyone who feels anxious or depressed (and TV news broadcasts are practically designed to make the viewers feel anxious and depressed), that mandated "benefit" drives a lot of claims. In theory, age within the working years shouldn't matter much, but it does because of other factors, e.g. accumulated injuries: a 50-year-old alcoholic or smoker has probably much higher claims than a 20-year-old alcoholic or smoker, but a 50-year-old cyclist of normal weight who doesn't drink much or smoke probably won't have much higher claims than a similarly situated 20-year-old, except vision which probably isn't covered anyway. The correlation between age and accumulated injuries is most of what drives higher claims for older workers. Sex matters if the policy covers pregnancy but women are starting to rack up higher costs even without that, partly because of excessive diagnostic radiation - they feel "responsible" going in for routine mammograms, which will have zero co-pay now, even though it causes more cancer.

BTW if anyone wonders why employers with "generous" medical insurance plans tend to add remote offices, one reason is insurance premiums. Consultants will tell you that if you move a lot of jobs far away, you may save on salaries and especially medical insurance. The reason is because younger workers who are cheaper to insure are also more likely to relocate, while older workers with deep roots in their local community are more likely to stay put even if it means retiring early.

Shabba   Wed, 6 Feb 2013, 10:16am PST   Share   Quote   Permalink   Like   Dislike     Comment 15

Yep, rates are going up. Rate increases are really
Low or negative for Medicare/Medicaid. For the commercial
Side they are going up more, like 5 percent. I haven't worked on
The commercial side in the last year and a half. I have heard of
Monster rate increases in the last couple of months and the
Justification I am hearing is obamacare. People are
Saying that premiums need to go up significantly to cover new
Entrants because the federal dollars coming in aren't high enough.
I don't know if this is actually true, but that is the story with some
Of the huge rate increases.

You could have a back-door rate increase by lowering benefits.
That is very, very unusual though. Almost always they increase cost
Sharing to bring down premiums. And the regulators do look at benefit
And cost sharing features. In a lot of states the state regulators don't have
The power to do anything though.

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