Health Insurance Inflation

Prices are rising less rapidly than they were 18 months ago across the economy, but one item on our budget where inflation is not under control is health insurance.  The most recent KFF health insurance premium survey shows that the average annual premiums for single coverage are now $8,435; family coverage is now averaging a cost of $23,968.  This is up 7% over last year, and 47% higher than in 2013.  Preferred provider plans cost a bit more ($8,906 and $25,228 respectively).  In contrast, the inflation rate, as measured by the Consumer Price Index, is 30% since 2013.  You can see from the chart that the price increases have been fairly steady since 1999.

Does this mean that the health insurance companies are raking in excessive profits at the expense of its policyholders?  The most recent report by the National Association of Insurance Commissioners (from mid-2022) lists the aggregate ‘loss ratio’ for different types of policies, which can be considered a back-of-the-envelope look at the difference between what the companies are taking in vs. what their policyholders are receiving in claims paid.  For comprehensive hospital and medical coverage from 2018 to mid-2022, the loss ratio ranged from 67.8% to 77.7%.  Medicare supplement policies experienced loss ratios ranging from 72.9% to 82.4%.

That doesn’t count administrative and overhead expenses (those people who routinely deny your claims don’t come cheap), so the actual profit margins are lower than these figures might suggest.  But there seems no question that the insurance industry is putting a decent amount of your premium dollars into its pockets—and it enjoys a relatively captive market that allows companies to raise rates without worrying that we’ll go bare in protest.

Sources:

https://content.naic.org/sites/default/files/inline-files/health-2022-mid-year-industry-report.pdf

https://www.kff.org/report-section/ehbs-2023-section-1-cost-of-health-insurance/