Trend and Its Impact on Health Plan Renewal Rates

2.5 minute read

Many employers lowered their claim costs during the COVID-19 pandemic due to people delaying their care. Now that utilization is increasing, medical plan costs are approaching pre-pandemic levels. Other items contributing to the increase include inflation, catastrophic claims, health care provider consolidations, and specialty prescription drugs.

Health care costs are expected to grow 7% in 2024. Employers are facing the difficult task of addressing rising health care costs while attempting to keep employee benefit coverage affordable. By understanding medical trend and how it impacts health plan renewal rates, employers can find strategies to help mitigate rising costs.

Trend

One factor in calculating a future cost increase is called medical trend or trend. Trend is a prediction of how much health care costs will increase over the next policy year, assuming benefits stay the same. Trend is one of the factors that health plans and stop-loss insurance use to calculate the renewal rates. Every year, the carriers set their own trend level based on a variety of factors including, current health care inflation rate, analysts’ forecasts, etc.

Establishing Trend

Trend is typically determined by taking into account the experience period (the known claims experience) and the projection period (six months of projected claims).

Determining Trend Factors

There are four main components of trend. The impact of each can vary widely depending upon which level of risk is being evaluated. Trend is a complex concept that takes into account many interacting factors, including historical experience and futures estimates.

The four main components of trend are:

• Inflation: The price per unit of service (medical supplies, staffing, equipment, etc.) will likely increase over time and be included in projecting plan costs.
• Cost-shifting: Care providers can shift costs from discounted payers (uninsured and government programs) to those charges based on what’s considered reasonable and customary.
• Utilization of new technology: Use of medical care can be impacted by new technologies, drugs, plan design, and local or regional conditions.
• Deductible leverage: If copays, deductibles, and other plan limits stay the same over time, there’s a greater claim cost to the plan because the service costs increase.

Summary

One of the top challenges for employees will be tackling affordability and rising health care costs. Employers need to find new strategies, reworking existing business models, and take advantage of transformational opportunities to lessen the impact of rising costs on their organizations. Understanding medical cost trend can help employers examine their plan designs and take steps to protect themselves from rising costs. Download the bulletin for more details.