Tip #464: How can an 8.6% Increase Actually be 11.5%?

The premiums for fully insured small group (2-50) health plans are based on type of business (SIC or Standard Industry Code), rating area and age.

Let’s focus on just the age component for 30 Seconds.

ABC Widget’s renewal letter arrived showing an 8.6% increase, assuming the same plan design.

But that doesn’t account for age changes.

A closer look at the rate chart shows the monthly premium for a 64 year old ($1,282.74) is roughly three times higher than for a 26 year old ($429.29). They ratchet up each year from 15 to 64 by 2-3%. Children age 1-14 are the same ($327.10) but then jump 8% at age 15 ($356.17).

Premiums are not adjusted on the birth date but at the plan’s renewal date. Since Widget’s employees all had a birthday (fancy that!) and one child turned 15, the new monthly premium was increased by an extra 2.9%. Had a 50 year old new hire replaced a 64 year old at retirement, Widget would have enjoyed a 12% decrease.

Even better, Widget just hired a chap named Ponce de Leon.

I can’t wait to deliver their renewal next year!