moneyFYI
Financial Freedom Is Merely Organized Common Sense
Problems In Group Insurance Are Coming
I commented recently on the problem group insurance providers are having with drug costs. That and other matters will affect future premiums.
The concern is two-part.
- Will employers discontinue or impose low limits on amounts the plan will pay. This provides a difficult choice. What if an employee or one of their family members needs a costly biologic drug? Essentially the employer will be forced to decide between saving a life or saving the plan.
All prescription drugs are becoming more expensive. The number of exotics grows continuously. Sovaldi fixes Hepatitis C but costs more than $50,000 for a 12-week course of treatment.
No employer is fully exposed. Most group plans have an upper limit for how much is charged to them as plan experience and how much is pooled. Your particular experience drives your rate. $10,000 is a common limit for cutoff now, but that has more than tripled in the past 10 years. It will likely become more in future and those plans with high claims will suffer. - Discontinuing coverage has a price too. Most plans are used in recruiting and are an important part of employee satisfaction. 83% of employees value it. Hard to take away.
The second area of concern is long term disability pricing. Many are already seeing this problem and it is not going away soon. Three reasons drive the significant price increases.
- People are working longer. Some plans now anticipate people being there until age 80. People in their 70s have more disabilities than those in their 30s.
- The incidence of disability is increasing. Partly because things that once killed people now just make them sick.
- All insurers have reserves for future claims. They earn income from investing that reserve and the income earned reduces the cash premiums they need. Reserves that earn 2% throw off less subsidizing investment income than they did when bonds paid 8%.
Group insurance is now or will soon become a luxury good. Both employers and employees can prepare now. Plan design is an important part of that. Trivial claims have overhead costs for the insurer and they flow through to premium. First dollar coverage and some specific benefits are too expensive. Recall that the group insurance deal eventually is, “Send us four quarters and we will send back seven dimes.”
Do not contract for coverage on small certainties, like vision care and zero deductibles. Better to have a plan that covers the improbable but expensive situations than to have an unaffordable plan that covers everything. Both employers and employees must be part of that discussion.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.
Contact: don@moneyfyi.com 705-748-5181
moneyFYI 
Part of this issue is caused by the pharmaceutical companies’ insatiable desire for profit. They bribe or coerce government agencies to allow new products to come to market with incomplete vetting. As the disclaimers on TV drug ads will attest, many of these “miracle” drugs have the potential to create greater health issues than they cure.
Pharmaceutical companies sponsor medical schools which train doctors to ignore cost in prescribing their products, while panning simpler solutions such as lifestyle and diet changes. The pharmas have massaged the egos of this generation of MD’s to the point that they feel liike “God with a stethoscope and a prescription pad.” Desperate families of tragically ill patients easily succum to the “faint hope” offered by obscenely profitable treatment regimes that offer questionable benefits, at whatever cost. After all, it’s covered by insurance, right?
Question: Would you rather spend $10 of your own money for a bottle of ibuprofen, or bill your insurance company for a similar prescribed product costing $50? Therein lies the problem.
Sadly, the current system certification for drugs and procedures favors the most expensive. Medical research costs millions of dollars. What company in its right mind would spend that kind of money to prove people could do without their expensive product by taking some commonly available household remedy? Who would advertise it? But yet, that is where many answers lie.
I have every sympathy for tragically ill patients and their families. Been there. And I share the concern and frustration of medical personnel who sincerely want to help. Yet there must be a balance between hope and reality, between altruism and greed. That’s where the wisdom is needed. And there is very little wisdom to be found in corporate boardrooms, or on TV.