How Health Insurance Is Priced: The Biggest Factor

03/09/21 • 17 min

Doxcost - The Ultimate Guide To Health Insurance

#013 - Learn why the amounts paid to doctors, hospitals, pharma and other providers are the single biggest factors in the cost of your health insurance.
Understand how underwriters and actuaries use historical paid claims to forecast future claims, establish reserves and keep pace with inflation. These amounts are then utilized to create the health insurance rates that you pay.
Paid claims are the amounts paid, on behalf of members of the employer group or individual pool, to doctors, hospitals, pharma and other providers.
IBNR (aka Incurred But Not Reported) is a reserve amount insurers must hold back to pay claims from the current year that are paid in the future - next year or years after. IBNR is calculated as a percentage of paid claims.
Trend is an amount that provides the ability of insurance premiums to keep pace with inflation. Medical trend (medical inflation). Trend is different than general inflation and has risen at much higher levels than general inflation over the past few decades. Trend is applied to paid claims and reserves.
See the following link from PWC that illustrates their methodology in considering 2020 and 2021 medical trend.
2021 Medical Cost Trend - PwC
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Next episode we continue to tackle how your insurance is priced and the factors that affect its price.
Thanks, as always, for your continued support! Doxcost continues to grow by leaps and bounds. Tell your family and friends to catch Doxcost on Apple Podcasts or where ever you get your shows.
See ya next time!

Previous Episode

How Health Insurance Is Priced: Underwriters Use Stuff You Know Well

#012 - Learn what everyday stuff underwriters use to price your health insurance.
Control what you can and forget the stuff that underwriters use, everyday stuff, like your age, sex and ZIP code, that is arbitrary and you cannot change.
If you live in New York or California, your rates are likely to be much higher than the person that lives in Nebraska or Mississippi. It's not your fault, just an economic reality. If you live in a low cost state, expect lower claims cost....if most of the employees live in a low cost state.
If your company is full of accountants or actuaries, expect a lower rate, in general, than if your company is a high performance racing team that participates in speed games. Truth is that I worked for a company whose Chief Actuary spent his leisure time as a driver racing at Watkins Glen....so it is not always a perfect assumption!
And, as for profit, which we discussed in Doxcost Episode 11, here is a link to a report on a publicly traded company, which owns hospitals, that announced its financial results for 2020. The company announced over $500 Million in profit in 2020 on nearly $12 Billion in revenue (aka the claims you incur and that the insurance company pays and reserves for).
CHS sheds 18 hospitals, swings to $511M profit
Also, I did like this author's characterization of Not For Profit companies.....Not For Profit sounds nice, but don't be fooled. Read the post here:
How Non-Profit Hospitals Are Driving Up The Cost of Health Care
Thanks, as always, for your support. It's all about Knowledge Experience Education and Information. Tell your family, friends and coworkers about Doxcost!
Next episode we will tie together all of the aspects of pricing so that you understand how what the actuaries and underwriters consider affects the price you pay for your health insurance.
I appreciate you very much!

Next Episode

Hospital Profits Cost You More

#014 - Providers of health care - hospital, doctors, pharma - operate to make a profit, whether they say so or not. Are you paying too much? Yes.
While insurance companies are often the recipient of consumer ire for the rising cost of health insurance, the cost inputs to those insurance premiums - most notably paid claims (aka the cost of doctors, hospitals, pharma and other providers) have the most significant effect on the price of your health insurance premiums. These input costs need to be equally, if not more, scrutinized!
This episode illustrates how hospitals and other providers are equally driven by profits. And there is nothing wrong with profits. Value is created when the product or service meets the lowest price possible when the buyer and seller have a meeting of the minds.
Your call to action is to purchase health insurance as you would any other consumable product. Identify the cost ahead of your purchase. Don't just take whatever they give you. And if you just say to yourself, "oh, insurance will pay for it....no big deal....." STOP! You are paying for it....you just don't realize it and the system likes it that way.
Become an informed and rational consumer of health care. It starts now!
Easily research data, from industry publications such as Becker's Hospital Review:
Ascension records $1B annual loss
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We'll continue on with helping you to be a better consumer of healthcare. Next we'll look further at the new rules handed down by CMS for transparent pricing.
Tell your family friends about Doxcost! We're growing! Catch us on Spotify or wherever you get your shows.
See ya next time!