Comments on: Competition Among Private Health Insurance Companies

By: Louise

Louise — Fri, 26 Feb 2010 20:18:16 +0000

Don,
That would be the case, except that we’ve found that the rate increases tend to rotate among the various carriers. So a carrier that has a higher-than-average rate increase one year might have a lower rate increase than their competitors the next year. Of the top 4 or 5 carriers in Colorado in the individual market, there isn’t really one that is consistently the best price year after year. Most of our clients tend to choose policies based largely on price, and we often find that a carrier that was very popular with our clients one year is much less so the following year… usually because of price fluctuations.
The scenario I was describing in my post had to do with a hypothetical situation in which one carrier raises rates drastically more than all the others in the market – they would likely find themselves without many healthy insureds. But when carriers are raising rates based on real claims and medical expenses, it makes sense that the rate increases across all the carriers will pretty much even out over several years.

By: Don Levit

Don Levit — Fri, 26 Feb 2010 18:54:27 +0000

Louise:
So when you shop around for clients, and do find a better deal, it is usually better for only a few years.
In that situation, if other agents respond accordingly, wouldn’t that particular carrier “find themselves insuring only their current members who are too sick to be accepted by a new carrier, and whose medical expenses are likely outstripping their premiums, even after the rate increases?”
Don Levit

By: Louise

Louise — Fri, 26 Feb 2010 17:29:22 +0000

Don,
Yes, over the long term, premiums from all the major carriers tend to keep pace with each other. But from one year to the next, there can be significant variation. So it makes sense for a healthy person to shop around every few years, as they might be able to find another carrier that is currently lower priced than their existing policy, or providing better coverage. That doesn’t mean that the new policy will always be lower priced (chances are it won’t be) but they can save money in the short term.
This isn’t always possible. Jay and I have had our coverage with the same carrier since 2003. We shop around every year when we get our rate increase, but there has never been an option that is significantly better.

By: Don Levit

Don Levit — Fri, 26 Feb 2010 17:20:05 +0000

Louise:
You wrote “If a health insurance company sets prices that are dramatically higher than those offered by their competitors,
they will quickly find themselves insuring only their current members who are too sick to be accepted by a new carrier, and whose medical expenses are likely outstripping their premiums, even after the rate increases.”
You seem to suggest that health insurance carriers want to keep their original block of members intact, with a proper mix of healthy and unhealthy insureds.
But, if that was the case, when many of your clients ask you to revisit their policy options every few years, I would think their options would be very few. This is assuming that their present insurer’s prices were not dramatically higher than others,so they wouldn’t lose their “best” customers.
Over time, “don’t their premiums tend to keep pace with each other?”
So, wouldn’t shopping around be a relatively fruitless endeavor?
Don Levit