In the three years to 2017, group health insurance premiums have been rising at an estimated average annual rate of 1.7%. The cost of reimbursing healthcare providers for the services they render on behalf of plan participants is a primary expense for health insurance carriers, referred to as claims and benefits. The price of healthcare services has been rising, resulting in higher costs for insurers during this period. Insurers have passed these cost increases to buyers in the form of higher premiums.
Demand for health insurance has also been growing during the period. Per capita disposable income has been increasing as the labor market has improved, which has allowed a greater number of individuals to afford health insurance. Likewise, the number of employees has been growing in concert with the economy, which has compelled employers to purchase more group health insurance policies to cover these new workers. Increases in these demand drivers have been accompanied by a spike in the number of physician visits, which has led to higher utilization of healthcare services and further augmented demand for health insurance. Collectively, these factors have fostered higher demand for services, which has given insurers greater pricing power over buyers.
The introduction of the PPACA has also driven an increase in premiums. Specifically, the reform has introduced a pool of riskier individuals into the health insurance system, leading to higher costs for insurers because these individuals require a wider array of healthcare services. Thus, insurers have raised premiums to offset these growing costs. Fortunately, price volatility has been minimal due to negligible fluctuations in price drivers and robust competition among suppliers. Consequently, buyers have been able to accurately budget for their health insurance expenses. However, in light of continued growth in premiums during the three years to 2020, buyers should renew their health insurance contracts as quickly as possible to lock in premiums at lower rates.
During the three years to 2020, group health insurance premiums are forecast to rise at an average annual rate of 2.1%. Sustained growth in the price of healthcare services will be one of the primary factors driving premium growth during this period, wherein suppliers will offset these higher costs for claims and benefits by raising premiums. Fortunately, buyers can benefit from locking in rates sooner than later.
Demand for services will continue to grow during the next three years. For example, the number of employees is projected to continue rising, albeit at a slightly slower pace as growth in the economy stabilizes and employers curb hiring. Still, more employees will facilitate greater purchases of group health insurance as employers seek to cover their new employees. Meanwhile, as the US population ages, the number of physician visits will grow as older citizens seek health-related services. As a result, individuals will be compelled to purchase health insurance to help cover the costs of these visits, eliciting greater demand for services. Ultimately, burgeoning demand for health insurance will facilitate continued growth in premiums.
Nevertheless, the impact of healthcare reform will decline in the coming years as the health insurance system adjusts to the requirements of the new health insurance regulation. Additionally, the impact of this regulation on large groups will be limited, because the provisions of the PPACA are directed at individuals and small businesses, and the majority of large group policies already satisfy the requirements of the act. Consequently, increases in premiums for large group policies will be lower than those for individuals and small businesses.
Through 2020, annual fluctuations in premiums will remain low. Negligible price volatility will benefit buyers by allowing them to plan for their health insurance expenses without worrying that premiums will spike. Although changes in premiums will be gradual, average premiums will continue to rise over time. Therefore, it is advisable for buyers to negotiate a one-year price guarantee in their contract with their insurer to delay the implementation of future premium increases.