Age, Gender Skew Group Health Care Rates
Perplexed by the unusually high rates she was paying for her employer-provided health insurance, NPR member station reporter Sarah Varney set out to better understand the system. She discovered that small companies' rates are dictated by the demographics of their work force — and when the work force is small, it can spell complications, higher prices or both.
We've heard a lot about how tough it can be for people to buy health coverage directly from insurers. They can be charged more if they're older, sicker or female. You might think that if your employer provides your health insurance, you're immune from all that.
Well, it may surprise you to learn that how much you pay can have a lot to do with what your co-workers look like.
Looking at my paycheck, there's a long list of taxes and deductions: Social Security, Medicare and a little money toward my retirement. The biggest deduction of all? My health insurance premium — it's a whopping $600 a month for a standard Blue Cross HMO plan for my husband, my toddler and me. My employer kicks in another $1,000 for a grand total of $1,600 a month.
Older Workforce Means Higher Premiums
That's a lot more than what other businesses of the same size in San Francisco pay, and I wanted to know why. I approached Joanne Carder, head of the human resources department at my public radio and television station in San Francisco. It turns out that my company pays a lot more for our health plan — but not because it's some fancy "Cadillac" coverage.
"We have a — I don't know how to say this — an older workforce," Carder says.
The average age of employees here is 47. That's more than seven years older than the regional average.
"That's a pretty big age difference," says Ed Kaplan, national health practice leader at Segal Co., a human resources consulting firm. "A group with an average age in the late 40s versus 39 — that could be a 10 to 20 percent difference in medical cost just for age difference."
Kaplan spends his days poring over spreadsheets used to set insurance rates around the country. The actuarial tables don't lie about our age. Every year we get older, our medical claims go up another 1 to 2 percent, he says. It's one of the first questions prospective insurers ask an HR department.
"They would ask for the census of the group — so, the age, the sex, the single-family status of the workforce," Kaplan says. "They would ask for typically two years — sometimes more — two years of month-by-month claim experience."
Communal Risk
For companies with more than 1,000 workers, insurers are more likely to base their rates on historical claims data. But for smaller companies, health plans rely more on age and gender.
"In the private market, group insurance is really social insurance," Kaplan says. "In a typical employer group, roughly half the employees will have no claims in a given year, and they are paying a premium. And there's some people in that workforce who are going to have $100,000 in claims."
As a younger, healthier person, I may subsidize the older workers at my company who need more medical care. But I also get something out of it — my co-workers who don't have kids help subsidize coverage for my family. And that's the point of group health insurance: We all take our chances together.
The health care bills under debate in Congress would do little to change how insurers set prices for employer-sponsored health plans. Also, they do nothing to solve this hiccup in the free market — that insurance companies might decide you're not a customer they want.
'Insurance Companies Are Businesses Too'
"We are a nonprofit agency," says Lily Chin, KQED's benefits manager, "and being nonprofit is not very attractive to insurance."
Chin says insurers have told her they won't underwrite nonprofits for fear that they'll go belly up. Others won't give her a quote because our company — with about 240 employees — is too small. Yes, insurance companies are businesses, too. They have target markets, sales goals and preferred customers.
"Some underwriters, insurers go for certain types of industries more than others," Kaplan says. "For example, they may go for more professional groups rather than blue-collar industries or things of that nature. So there's all these different mix of markets they go after, and that is based on their history — are they making more or less money in a segment of the market or in certain regions of the country?"
Steven Lindsay, a licensed insurance agent and a lobbyist for the California Association of Health Underwriters, says that in some circumstances, insurers will give steep discounts to preferred customers.
"They decide to get competitive, and they want more business so they'll undercut their competitors," he says. "In effect, they put insurance on sale, so instead of charging what it really costs, they charge 5 percent less so they can get more business."
"How come I never get that sale?" I ask Lindsay. He laughs.
It seems highly unlikely that my company will ever get offered a sale price on health insurance. We are not and probably will never be preferred, gold-plated customers.
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STEVE INSKEEP, host:
Now let's talk about the cost of insurance for those who have it now. If you get insurance through an employer, the price you pay is not strictly based on your health. It is based on the age and health of your co-workers. If you work with a bunch of young and healthy people, your rates are probably below average. If your colleagues are older and less healthy, then you may pay a lot more.
From member station KQED, Sarah Varney explains how group rates are set.
SARAH VARNEY: I've got my paycheck here, and let's see, there's this long list of taxes and deductions, Social Security, Medicare, a little money toward my retirement, and the biggest deduction of all - my health insurance premium, a whopping $600 a month for a standard Blue Cross HMO plan for my husband, my toddler and me. My employer kicks in another $1,000 for a grand total of $1,600 a month.
That's a lot more than what other businesses of the same size in San Francisco pay, and I wanted to know why.
(Soundbite of door opening)
VARNEY: Hey there.
Unidentified Woman: Hey, whats going on?
VARNEY: Im here to interview Joanne about group health insurance rates.
Unidentified Woman: Excellent.
VARNEY: It turns out that my company pays a lot more for our health plan, not because it's some fancy Cadillac coverage.
Ms. JOANNE CARDER (Human Resource Department): We have a I don't know how to say this an older workforce.
VARNEY: Joanne Carder is head of the HR department at my public radio and television station in San Francisco.
The average age of employees here is 47. That's more than seven years older than the regional average.
I talked to Ed Kaplan at the Segal Company, a human resources consulting firm. He spends his days pouring over spreadsheets used to set insurance rates around the country.
Mr. ED KAPLAN (Segal Company): That's a big - pretty big age difference. A group with an average age in the late 40s versus 39 that could be a 10 to 20 percent difference in medical costs just for the age difference.
VARNEY: The actuarial tables don't lie about our age. Every year we get older, our medical claims go up another one to two percent, says Kaplan. It's one of the first questions prospective insurers ask an HR department.
Mr. KAPLAN: They would ask for the census of the group so the age, the sex, and the single-family status of the workforce. They would ask for two years of month-by-month claim experience.
VARNEY: For companies with more than a thousand workers, insurers are more likely to base their rates on historical claims data. But for smaller companies, health plans rely more on age and gender.
Mr. KAPLAN: In the private market, group insurance is really social insurance. So in a typical employer group, roughly half the employees will have no claims in a given year, and so theyre paying a premium. And there's some people in that workforce who are going to have $100,000 in claims.
VARNEY: As a younger, healthier person, I may subsidize the older workers at my company who need more medical care. But I also get something out of it my co-workers who don't have kids help subsidize coverage for my family. And that's the point of group health insurance: We all take our chances together.
The health care bills under debate in Congress would do little to change how insurers set prices for employer-sponsored health plans. And they do nothing to solve this hiccup in the free market: Insurance companies might decide your company is not a customer they want.
Ms. LILY CHIN (Benefits Manager, KQED): We are a nonprofit agency, and being nonprofit is not very attractive to insurance.
VARNEY: Lily Chin is KQED's benefits manager. She says insurers have told her flat out they won't underwrite nonprofits for fear they'll go belly up. And others won't give her a quote because our company with about 240 employees is too small. Yes, insurance companies are businesses too. They have target markets, sales goals and preferred customers.
Mr. KAPLAN: Some underwriters, insurers go after certain types of industries more than others. For example, they may go for more professional groups rather than blue-collar industries or things of that nature. So there's all these different mix of markets they go after. Thats based on their history are they making more or less money in a certain segment of the market in certain regions of the country?
Mr. STEVEN LINDSAY (California Association of Health Underwriters): They decide to get competitive and they want more business, so they'll undercut their competitors.
VARNEY: Steven Lindsay is a licensed insurance agent and a lobbyist for the California Association of Health Underwriters.
Mr. LINDSAY: In effect, they put insurance on sale. Instead of charging what it really costs, they charge five percent less so they can get more business.
VARNEY: So how come I never see that sale? How come I dont get those sale prices?
(Soundbite of laughter)
VARNEY: It seems highly unlikely that my company will ever get offered a sale price on health insurance. We are not and probably will never be el-primo preferred gold-plated customers.
For NPR News, Im Sarah Varney. Transcript provided by NPR, Copyright National Public Radio.
