Health Plan Medical Expenses Keep Rising

Consulting firm Mark Farrah Associates  (MFA article) recently released findings indicating that medical expenses for America’s private health insurers continue to increase very rapidly.   Over the last six years medical expenses have increased an average of 8%, based on statutory reports filed by the insurers.  In 2008, those medical expenses accounted for 88% of premiums received, which is up from 85% in 2006.  Health plans have been able to reduce administrative expenses or are making less profit.  The rate of growth has been relatively stable since 2002, but health plans have not been able to decrease the trend, so in aggregate, per person per month medical expense is up over two thirds in that period of time.  Most of the increase is due to increasing hospital and physician payments.  Pharmacy expenses have trended well below the overall medical expense average.   The Northeast and MidAtlantic regions have the highest cost and highest increases and the West, other than California has the lowest.   Among other things, the data indicate that hospitals and physicians continue to have bargaining power in regard to health plans.  The findings also demonstrate how difficult a task the private insurance market has to just begin to slow the rate of increase, much less reduce it to either the general rate of inflation or the rate of GDP growth.