As noted in a recent posting, we are now beginning our negotiations with United HealthCare over our insurance rates for 2010. The opening salvo from UHC was pretty discouraging, but I suspected that our terrific Benefits team would be able to bring some sanity to the discussion. And I'm pleased that already we're seeing positive results, with the latest quoted rate increases now in the 15-18% range -- still outrageously high and unaffordable, but better than where we started. This is a lengthy process and we still have a long way to go.

One result of these discussions is that UHC has provided us with the background information they use to determine what our premiums will be. The most important variable, not surprisingly, is what our claims experience has been, or what they call our "utilization rate". They look to see what our claims have been--for doctor visits, hospital stays, pharmaceuticals and other kinds of claims--and use those to figure out what we should pay in premiums to cover future claims and, presumably, their profit margin. I'm no defender of insurance companies, but I can understand their rationale for using the past to try and predict their future costs for insuring our staff.

According to this data during the past year our claims increased by slightly over $1.4 million, an increase of 29%. Since one of the main drivers of our healthcare rates is how much our claims go up, understanding our utilization experience makes it much easier to see why our initial proposals came in so high and why containing premium costs going into 2010 is going to be so challenging. In analyzing the utilization data further we found that we had not only had unusually high plan utilization over the past 12 months overall but had also experienced an unusually high number of “high cost” claims which are defined as claims over $50,000. Below are additional statistics from the past year which should further clarify why we are facing a rate increase and the relationship between our plan utilization and plan costs. I found this data very informative and hope you will as well.

- We had a total of 25 “high cost” claims, an increase of 56%

- The average net amount paid per high cost claimant was $144,000

- Our net amount paid per employee per month for high cost claims is about 69% over norm

- Inpatient hospital admissions increased by almost 35% and the average number of days in the hospital increased by 24%

- The average amount paid per hospital admission increased by almost 24%

- In network utilization decreased by about 2% to 92%

- Covered expenses per employee per month increased 25% to $419.77 from $336.17, which is about 14% above the norm

- The average net amount paid per claimant increased 49% from $2,576 to $3,832

In the short-run, there is very little the company can do to impact the above. People get sick, they go to the doctor or hospital, they incur medical costs, and the insurance is there to cover them. But we need to consider in the long-run what we can do individually and collectively to reduce these costs.

One approach attacks the problem through wellness programs, smoking cessation and weight control programs, and other ways in which the company can gently but firmly encourage and even reward healthier lifestyle choices and behaviours. Another approach uses the design of the health insurance plan itself to reduce overall insurance costs via adjustments to co-payments and deductibles and other plan design modifications. We clearly have some choices to make in order to get next year's rates down to an acceptable level, and our Benefits team is looking at all options.

I would love nothing more than to blame the high cost of health insurance entirely on the insurance companies. But we clearly have to take some responsibility ourselves for the costs we incur for our collective healthcare. Every time we light up a cigarette, skip a regular check up, allow our weight to drift higher than we know it should, or visit an out-of-network physician when an in-network doctor would have done just fine, we boost our collective healthcare costs.
And, ultimately, the insurance companies will make sure we pay.