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Health insurance cost increases jump back to pre-pandemic pace

Melissa Messite, director of operations at Progressive Care

Melissa Messite, director of operations at Progressive Care Solutions in Syosset, said a PEO saved the company money.   Credit: Mohammed Khan MD

After a brief respite, health insurance rate increases are returning to their pre-pandemic pace.

In the so-called small group market, which covers employers with 1 to 100 employees, New York State regulators approved a 7.6% average premium increase for 2022 — much less than the 14% insurers requested, but nearly double the 4.2% average increase approved for 2021. That lower 2021 increase reflected a deferral of care in 2020 due to COVID, experts say.

"We were eventually going to get back to pre-pandemic levels," says Gregg Pajak, president of the WizdomOne Group Family of Companies in Islandia.

"Medical claims decreased significantly in 2020 due to the postponement of elective and non-emergency services, but medical claims have increased in 2021 as New Yorkers catch up on medical appointments and postponed services," according to the New York State Department of Financial Services, which approves the insurance rate increases. As a result, medical claims trends, the rate at which medical costs and utilization increase, have returned to pre-pandemic levels, DFS said.

The 7.6% is an average across multiple insurance carriers and plans statewide, Pajak noted, so some plans will go up more than that average while some will see smaller increases.

James Eckardt, president of Peak Advisors Inc., a Holtsville health insurance broker, says generally premiums are more expensive on Long Island than other parts of the state. That’s because services are more expensive here with Long Island being a high-cost region, he says.

The 7.6% increase for small firms is higher than increases anticipated for larger firms with more than 100 employees, where rates are individually set with carriers.

Large employers expect their costs for medical and pharmacy benefit expenses to increase 5.2% in 2022, according to insurance advisory firm Willis Towers Watson.

Economies of scale may play a part in keeping increases for larger firms lower than those for smaller firms, but it probably has more to do with differences in risk, says Dr. Jeff Levin-Scherz, managing director and population health leader at Willis Towers Watson.

Since smaller companies tend to subsidize less of employee health insurance costs, meaning employee contributions are higher, there’s likely a smaller portion of employees opting to take insurance. The ones that do take it are likely to be the "sicker" population, utilizing more services and subsequently driving up insurance costs, he says.

With higher costs looming, some employers are looking to contain costs by implementing spousal surcharges, for employees that opt to add on a working spouse, or offering narrower provider networks, says Levin-Scherz. See tinyurl.com/7zcfwvsw

Eckardt says he’s seeing more employers opt for narrower networks, which generally have lower premiums in exchange for fewer participating doctors.

Pajak says more clients are considering high-deductible health plans paired with reimbursement vehicles like a Health Savings Account to bring down costs.

Others are joining Professional Employer Organizations, which pool employees from many businesses together giving them greater negotiating power, says Anthony Millaci, CEO of Manhattan-based CostMarc Consulting Group, which helps clients contain costs and enhance profits.

Companies can see between 15% and 20% in health insurance savings by moving from the small group market to a PEO, he says. They have to balance any savings against the fees they’d pay a PEO, which might offer other services like payroll and HR functions. Millaci said his firm has negotiated PEO fees for some clients from $150 down to $80 to $95 a month per employee.

Joining a PEO saved Progressive Care Solutions in Syosset about $75,000 a year in health insurance costs for its 75 New York employees and over $100,000 companywide, says Melissa Messite, director of operations at Progressive, a provider of primary and specialty care services to nursing homes.

She said belonging to the PEO, which A & C Management Group in Great Neck helped her secure, also enabled Progressive to offer more options to employees including group life insurance and other benefits.

"It’s great for recruitment purposes," Messite said.

Fast Fact

86%

Percentage of employers who said achieving affordable health insurance costs for employees, especially lower wage employees, is a top priority.

Source: Willis Towers Watson

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