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Health Insurance Inflation Rate Hits Five Year High

The Consumer Price Index for health insurance in April rose 10.7% over the previous 12 months—the largest increase since at least April 2014, according to the U.S. Bureau of Labor Statistics’ unadjusted monthly Consumer Price Index data.

The other categories that make up the medical care services index—professional services and hospital and related services—rose 0.4% and 1.4% in April, respectively. The CPI for medical care services in April rose 2.3%, while overall inflation increased 2% year over year.

Because of the way the BLS calculates the health insurance index, the change year over year does not reflect premiums paid by customers, but “retained earnings” after paying out claims. These earnings are used to cover administrative costs or are kept as profit.

The BLS redistributes the benefits paid out portion of the health insurance index to other non-insurance medical care categories, such as physician services.

The likely reason health insurance inflation is rising is because of growth in managed care, including Medicare Advantage, Medicaid managed care and commercial insurance also administrative costs increase insurance price growth.

The increase in the health insurance index could also be driven by the fact that insurers’ medical loss ratios may be decreasing as high premiums, especially in the individual health insurance exchanges, exceeded anticipated claims.

The medical loss ratio reflects the percentage of every premium dollar spent on medical claims and quality improvement. Insurers must pay at least 80% of premiums on those things and if they don’t, they must issue rebates to plan members, as part of the Affordable Care Act.

Affordable Care Act exchange insurers hiked premiums higher than necessary in 2018 and now expect to pay out $800 million in rebates to individual market customers this year because they did not meet the medical loss ratio threshold, according to a Kaiser Family Foundation analysis published this month. Because medical loss ratios are declining, health insurers in the individual, small group and large group markets expect to issue $1.4 billion in rebates based on their 2018 performance, the analysis stated.

Read more in Modern Healthcare

Prior to the 1960s, most people didn’t even have health insurance. Why? Perhaps because health care costs were so low. According to Parents Magazine the average cost of a normal delivery and newborn care as of 2018 was about $30,000 and if you needed a C-section it was about $50,000. According to the U.S. Census Bureau the median household income (i.e. total of both wage earners) is $57,617. So a C-section costs almost all the money a family made in a whole year.

But in 1943, Mrs. Davis paid a whopping $29.50 for her hospital stay. This may not have included the Doctor’s bill so we might assume that the total cost was twice as much. So perhaps $60 total? The minimum wage in 1943 was 30¢/hr. so if Mrs. Davis worked a 40 hour week she made $12 per week. So her entire delivery cost was roughly 5 weeks income (at minimum wage!) If her husband worked in manufacturing he would earn about $41 per week, so her delivery including doctor and hospital would have cost about 1.5 weeks wages, compared to 6 months today.  And hospitals made payment plans available. No wonder they didn’t need insurance.

Insurance was such a non-issue that the U.S. Bureau of Labor Statistics didn’t even begin tracking insurance costs separately until 2005 (when they set the index equal to 100).  Some years health insurance costs increased much more than the average item.  For example in 2007, insurance costs increased 12% while overall prices increased 4% at most. Then prices actually fell more than average beginning in mid-2008 through mid-2011. Then health insurance costs jumped again to regain losses, peaking at an almost 15% increase in 2012. Prices began increasing at a slower rate and once again prices actually fell briefly in 2014 (i.e. prices are below the zero line) but recovered in 2016. And were basically flat with 0% growth from mid-2017 through mid-2008 before spiking again in the second half of 2018.

To see charts illustrating the health insurance vs CPI, see Inflation



Contact Alexis Hertel at

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