Clients’ health insurance premiums go up every year and advisors are struggling to explain why. And while there is no one answer, there are some reasons that can cause your health insurance premiums to go up (we talked about a few other reasons in Part 1 & 2 of this series).
When you pay premiums to your insurer, the vast majority of it goes towards covering claims with the rest going to operating costs and shareholder profits. A high amount of claims (both real and fraudulent) can cause premiums to jump across the board.
Healthcare fraud is a significant problem for insurance companies. Some studies have shown that on a global level, 28% of all fraud is related to health and critical illness insurance with Asia having a higher incidence of fraud than in other regions. Unfortunately, because fraudulent claims from some dishonest actors are inflating claims costs, insurers must raise premiums to offset its effects (so if you’re wondering why your insurance is more expensive here than elsewhere, that’s why).
Operating Costs (Regulations/Compliance)
As you can imagine, insurance is a very highly regulated industry with operations that span the globe. On a day-to-day basis, insurers must contend with many regulatory issues like GDPR, VHIS, and other regional regulations.
These laws govern everything from the ways insurance companies can communicate, premium transparency, coverage requirements, financial management, and 100 other things. While these regulations are necessary for the public good, they also raise operating costs for insurers which eventually gets passed on to consumers in the form of increased premiums.
Insurers decide how much to charge based on their statistical estimation of risk. In a perfect world, insurers would be able to predict with 100% accuracy how a health insurance product will perform but that’s not always possible.
If an insurer has misjudged the market and charged too little due to higher than expected claims costs, they will need to either increase premiums drastically to be profitable or to remove that plan from the marketplace altogether.
When we see this happen with our clients’ policies, it’s usually a bad sign that the insurer may be in financial trouble. If this happens, we’ll get in touch with clients and switch them over to a new insurer or policy.
As mentioned above, insurers decide what to charge mostly based on risk. When it comes to health insurance, the older you get, the more susceptible you are to illness so this is a huge factor. Insures generally have different age groups that determine how much you’ll pay for insurance. If you’ve just jumped to the higher age bracket, you can expect your premiums to go up as well.
Have Your Premiums Gone Up?
Hopefully you now have a better idea of what can influence the premiums you pay for health insurance. But if your premiums have gone up, get in touch with a Trusted Union insurance advisor. We can help analyze your policy for savings or shop around on your behalf to find you a better deal. You can read Part 1 & Part 2 for more information.