Every year when your broker meets with you to review your health plan renewal and explain why your rates are going up – even if you had a good loss ratio – part of that explanation will center around “Medical Trend”. If you are fully insured your broker may emphasize the impact of Medical Trend more than if you’re self-insured, but none the less it will be a factor in explaining why your rates are going up. Your broker will most likely try to convince you that Medical Trend is the increased cost of services due to inflation, cost of materials, operational expenses, blah blah blah. If this true, then why is Medical Trend historically higher than general inflation? Something to think about. They may include some statement that even though your plan’s utilization (the number of services and their related costs) was pretty good, overall utilization as a whole has been growing every year. The broker may actually believe this because that’s what the insurance carrier told him/her.
The fact of the matter is utilization in health care in this country has been relatively flat for the past decade. In 2020 (non-Covid-19 related) utilization nearly came to a screeching halt. Did you still get a rate increase in 2021? Utilization is not the reason health care costs (units) are going up. The increasing price set by providers and insurers is the reason. That’s where Medical Trend comes in.
When an insurer and a hospital/health system negotiate a rate contract it can be a complex process that can take up to two years. They don’t have the ability to renegotiate rates each year to coincide with your annual renewal. So, they build in a clause – sometimes referred to as an Evergreen Clause – to include an annual set increase in the rate they last negotiated. Typically, this can be an automatic 4 – 8% increase. The majority of that increase goes into labor. And a large chunk of that labor goes towards non-clinical labor (billing, accounting, unit managers, administrative executives, etc.). But that part of the story is for another blog.
Medical Trend is actually the amount of contracted price increase agreed to in advance for future years. It has little or no correlation with actual increased costs of providing services. If the hospital experienced a 4% increase in costs this year but their PPO contract agrees to an 8% increase which one do think is reflected in your renewal? If Medical Trend is pre-negotiated between your insurance carrier and the health system, why doesn’t your broker (or carrier) inform you in advance of the automatic increase?
Whether you’re self-funded or fully insured annual plan rate increases are in part due to Medical Trend. But there’s much more to the hidden reasons to why the employer sponsored health care system is stacked against you. If you want to get off the “Renewal Increase Carousel” and quit doing the annual renewal “Kabuki Dance” to get the lowest rate increase you can withstand then call me. I’ll help you build health plan strategy that reverses the renewal trend to lower your costs while increasing coverage and quality care for your employees.