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Health care use trend may temper premium hikes

July 27, 2011

Consumers may catch a little break when their health insurance policies renew. Lower-than-expected use of health care has helped push insurer earnings higher and that may temper how much they increase premiums.

Analysts and industry observers say people tend to hold off on elective surgeries or skip doctor visits after a deep recession, and that makes utilization grow more slowly. Insurers consider this trend when they determine what they will need to collect in premiums to cover future claims, and employers likely will use it as a bargaining chip when they negotiate prices of the plans that cover their workers.

This doesn't mean consumers on a steady diet of rising premiums in recent years can expect a price drop.

"I think what it promises is some level of stability in rates," said Dan Mendelson, CEO of the research firm Avalere Health. "It doesn't promise that rates are going to go down or that they are going to be flat, but it does predict that there shouldn't be wild increases in rates."

Health care use has slowed to a growth rate "we haven't seen in many years," said Robert Laszewski, a former insurance executive and now a policy consultant. He said this means premiums should keep rising but at lower rates than recently.

Aetna Inc. said Wednesday that its second-quarter net income rose 9 percent in part because of the continued slowdown in use of health care services by its members. It earned $536.7 million, or $1.39 per share, in the three months that ended June 30, up from $491 million, or $1.14 per share. Its revenue slipped 2 percent to $8.34 billion.

Indianapolis-based isurer WellPoint Inc., which also reported results Wednesday, said its second-quarter net income fell to $701.6 million from $722.4 million. Its earnings per share rose nearly 11 percent because it had fewer shares outstanding.

CEO Angela Braly said WellPoint was hurt, in particular, in Northern California, where one of its plans attracted more customers with a higher risk profile than they expected because a competitor left the market. But the company overall has seen lower health care use than expected so far this year.

Industry-wide, premiums on employer-sponsored insurance climbed a modest 3 percent for family coverage and 5 percent for singles last year, according to an annual study from the Kaiser Family Foundation and the Health Research and Educational Trust.

Prices in the individual market can vary by a broader range, and premiums for some policies have grown well beyond 10 percent in recent years.

The price a consumer pays for insurance depends on many factors aside from trends like health care use. It can change if a plan's coverage or deductible changes or, for people with employer-sponsored coverage, when a company changes the percentage it pays.

"Some employers pass the whole increase on to their employees, some eat parts of it," said BMO Capital analyst Dave Shove.

Rates for people buying insurance individually can vary based on their age and health and where they live. Rates also can rise and fall depending on the health of other people in a plan's risk pool. If many healthy people in a plan drop coverage, the insurer must raise rates for the people who remain, Laszewski noted.

Like WellPoint and Aetna, UnitedHealth Group Inc. also has said growth in the use of care was moderate in the first half of this year. Some analysts expect this slower rate to continue into 2013, but insurers forecast a rebound later this year.

For now, Mendelson says consumers should be happy costs aren't rising any faster.

"If you saw a dramatic increase in costs right now, you could be assured of a significant rate increase," he said.

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