Insurance premiums have been outpacing inflation for years. It is nothing new. As a result, annual reports paint a bleak picture of both employers and employees being squeezed ever more tightly by unaffordable premiums. This year has been no exception. But have estimated premium hikes for 2023 finally pushed traditional health insurance to critical mass?
In physics, critical mass is often defined as the total mass of matter necessary to prevent any future expansion of the universe. In a nuclear reaction, critical mass is the smallest amount of matter capable of sustaining that reaction. Both definitions work well as analogies to describe the current state of health insurance in America.
Subscribers Are Not a Bottomless Pit
Health insurance companies have indiscriminately increased premiums because they know subscribers will pay them. Yet subscribers are not a bottomless pit of financial resources. At some point, continually rising premiums will force consumers to choose between health insurance and food. With inflation still out of control, we may have finally reached that point.
If so, that means we have also reached the point at which health insurance premiums can no longer continue growing. If consumers cannot pay higher premiums, they won’t. Neither will employers. Insurance companies without customers subsequently go bankrupt.
Providers Are Increasingly More Frustrated
While employers and their employees find themselves being squeezed out by ever higher premiums, healthcare providers are increasingly more frustrated by their dealings with insurance companies. They constantly need to fight for reimbursements. Every time rates are adjusted things seem to go in insurance companies’ favor.
Traditional health insurance has become such a problem for doctors that they are increasingly looking at the concierge model. Concierge medicine is essentially a flat fee model. Patients pay an annual fee for access to a particular level of care. The fee is paid out of pocket, thereby allowing doctors to bypass insurance companies completely.
Alternative Plans Are Growing
The final factor in all of this is the steady growth of health insurance alternatives. Long before the Affordable Care Act made an already broken health insurance system worse, consumers had access to health share plans. Such plans were not all that popular 20 years ago. However, a lot has changed in recent years.
Health share plans are not the only alternative, though. Here are two more:
High Deductible Health Plans (HDHPs)
HDHPs are similar to traditional group health insurance in the sense that they are insurance products. But they differ in two key areas. First, they offer less coverage as a way to keep costs down. Second, they further control costs by imposing high deductibles on subscribers.
Self-Funded Health Plans
Self-funded plans are employer-sponsored plans administered by organizations like Nevada-based StarMed Benefits. A self-funded plan is paid for entirely by the employer, with or without employee contributions. No insurance companies are involved. Self-funding avoids traditional insurance and the high costs associated with not being able to control benefits or expenditures.
The Need for Traditional Insurance Is Fading
Stepping back and analyzing the current state of America’s health insurance market reveals an uncomfortable truth for insurance companies: the need for their products is fading. After so many years of uncontrolled rate increases, employers and consumers are getting fed up. They are making an effort to figure out if there are better ways to do things.
In light of crippling inflation and what appears to be unavoidable recession, traditional health insurance could be in trouble. One could make the case that it has reached critical mass. How the industry deals with current conditions will determine its future – in 2023 and beyond.