Why Your Health Insurance Costs More Every Year

February 28, 2012

It’s never fun picking up the phone to tell someone they have to pay more for the same thing they already have. It is however, the realistic nature of health insurance and part of my job. What makes it easier for you is understanding why your rate has increased and more importantly what you can do about it.

Usually I am treated with one of two standard response when talking to a client about their renewal. The first, I like to call, the defeated acceptor. This group is getting smaller and smaller each year. However, they will say, “It’s because I’m a year older, isn’t it?” The answer, yes and no. Or you have the constant denier, who says, “That’s ridiculous, I didn’t have a single claim last year.” Both groups have valid points and are highlighting things that do have a slight effect on their yearly renewal.

However, neither of which are the main reason you find yourself in a fit of rage each year come renewal time. For that, you can thank the dynamic duo of medical inflation and overall risk pool health.

I know a lot of people like to think that insurance companies charge arbitrary high premiums for no apparent reason. While there are sporadic instances where this might happen (usually due to extreme health conditions or an aging/deteriorating risk pool) health insurance rates are largely reactive to the increasing cost of medical care and the group (or risk pool) of people you are insured with. I can’t remember the last time I saw a doctors office advertising a buy one get one free physical examination sale. The truth of the matter is, medical services are expensive. Doctors and hospitals are not going to be taking a pay cut or start offering great deals anytime soon.

That means, the greater the risk (or potential cost for medical services), the more expensive it is to insure that risk. As long as MRI tests cost more then a trip to Europe and major surgeries more then a modest home, It doesn’t matter where you get your health insurance from, it will always cost more then you want it to.

Your risk pool is going to have the most significant effect on your yearly health insurance renewal. The fundamental principal of insurance is to transfer the risk of one individual by spreading it out across a larger group of people. This means, if the 7,000 out of the 10,000 people you are insured with ended up having a rough year medically, the insurance company will have paid out substantially more in claims then they anticipated. Thus leading to the necessity for that company to recoup those funds in order to keep the risk pool and company solvent, or capable of paying claims.

What can you do about it?

You should have an insurance broker (preferably an independent agent) review your health insurance renewal each year. They will be able to tell you if the renewal is average, even if it seems high to you, or if your current company got a little greedy this year and that you can do better. If the later is true, they will more then likely suggest you consider switching companies, if you are in a position to do so. If not, you can always make a plan change with your current company to lower your premium.

There is no magic formula to keeping your health insurance premiums down. The best thing you can do is to find a health insurance broker who will review your policy each year. This will allow you to ensure that you are always paying a rate you are satisfied with.