MILLIMAN, USA
April 10, 2003
Health Insurance Underwriting Cycle Effect on Health Plan Premiums and
Profitability
By Richard Kipp, M.A.A.A., John P. Cookson, F.S.A., & Lisa L. Mattie, R.N.
Health care cost trends are not the only factor influencing the change in health insurance premiums. Competition, legislation, regulation and difficulty predicting future costs are all contributors to the phenomenon called the underwriting cycle-a repeating pattern of gains and losses within the insurance industry. As the cycle plays out, expected trends and the associated premium increases tend to go above or below the actual rate of change in underlying health care costs. Today, as the cycle approaches another highpoint, we see improved profitability of Plans as premium growth exceeds the growth in the costs of health care claims for Health Plan enrollees.
Today as premium growth again climbs into the double-digits, it is important to understand the role this cycle plays as we formulate a policy response to current trends.
This report first discusses the underwriting cycle in general terms, and then describes some of the actions and reactions that Health Plans’ typically exhibit at various points during a cycle. Lastly, the report discusses specific events of the 1990s that may have contributed to the pattern of insurance company profits and acted to exaggerate upward and downward swings in premium growth-swings that went well above or below the actual changes in underlying health care costs.
http://www.hospitalconnect.com/aha/press_room-info/content/MillimanReport030410.pdf
Comment: This report, prepared by a leading consulting firm for the health care industry, provides a clear description of the underwriting cycle. It is important to understand why we have intermittent periods of excessive premium increases interspersed with solvency issues that continue to threaten the stability of the health care system.
This is yet one more reason why we should abandon the use of “market forces” to control health care funding in the United States, and, instead, adopt a rational, single payer system of funding care.