In what can only be described as the most unexpected news since the Taliban learned about disco last week, Aetna has announced a premium drop in the 3rd quarter. Yes you don’t need to reload this page, you read that correctly, Aetna is lowering premiums. Ok so its only in Connecticut, and its only 10%, and its only in the individual market, but it is a huge departure from the usual 10% increase.
Obviously, Aetna is taking corrective action to avoid have to write checks to policy holders. The MLR (or Medical Loss Ratio law for those that don’t read this column regularly, shame on you!), simply states that 80% of insurance company revenues need to go towards medical costs. Well in 2010 according the Connecticut Insurance Department, Aetna’s individual policies in Connecticut had an MLR of only 54.3%. So based on that fact alone, the 10% would seem to not be enough. Still perhaps Aetna is trying to err on the side of caution as to not overfund the premium cuts, kind of like what I do when I test out my circumcision in a box kit for proud fathers (I’m running out of space to experiment).
The reason for this of course is the premiums were to high to begin with, but the reasons proffered by those in the know (like insurance company reps) claim that the reason for the drop is lower utilization due to higher deductibles meaning more out of pockets. Put simply, when people have to pay for their medical procedures they tend to put them off or avoid them altogether. More importantly, the MLR ratios are lower in the individual market. Another way to put that sentence would be to say, the individual market is much more profitable than the group market because companies can pick and choose their risks and because the policies tend to have higher deductibles and less-comprehensive benefits. Both factors can result in fewer, smaller claims, putting downward pressure on the medical loss ratio.
The article I used in this research in the LA Times claims,
In addition, insurers sometimes have high administrative expenses, and not only because they have to review and approve people for coverage in the individual market. Jost says a review of commissions paid to brokers found that insurers sometimes paid them as much as 40 percent of the first year’s premiums. “That’s more than they spend on drugs, and far more than on primary care,” he says.
“If you ask the consumer, ‘Do you think more should be spent on pharmaceutical costs or on agents and brokers?’ what do you think they’ll say?” asks Jost.
Of course this statement is misleading as the companies that pay 40% commissions are not Aetna or major carriers, but tend to be second tier carriers like Assurant (no longer offers individual major medical) or Golden Rule (owned by the swindlers at United, who did away with their Platinum Plans which were designed to make them and their brokers money). No real carriers ever pay more than 25% first year and 5-7% renewals. At least East Coast Health Insurance never offered these plans. Of course, 25% is a ton of money too and now commissions are at an average of 12% first year and 4% renewals. I think this number should be 15% and 5% though to preserve agents who specialize in the business like yours truly.
The other big MLR news being bandied about is if broker commissions will be exempted altogether. Perhaps this is a good idea although the comps should be capped at 15/5. In any case, I am more concerned with the rise of the minimed. Do not buy this shit product until you review the new PCIP plans. If you don’t qualify for PCIP you can buy a minimed, but at least make sure you understand what it will take to qualify for PCIP and don’t mess up your ability to qualify. In other words, you have to be without insurance for 6 months and because minimeds are not insurance, they might make sense for the 6 months until you can get on the newly affordable PCIP plans.
