Fuzzy math

Fuzzy math

From Aon Consulting:

While still reaching double-digit figures, healthcare costs are beginning to increase at a lower rate… Aon Consulting surveyed more than 70 leading healthcare insurers (representing more than 100 million insured individuals) and found healthcare costs are projected to increase in the next 12 months by 12.2 percent for HMOs, 12.4 percent for PPOs and 11.9 percent for POS plans. This compared to one year ago, when HMO cost increases were 13.2 percent, PPO increases were 13.0 percent and POS cost increases were also 13.0 percent.

But wait a minute, are costs really increasing “at a lower rate?” Maybe in percentages, but not in dollars. Take the HMO figure for example. According to Aon, the rate of increase decreased from 13.2 percent to 12.2 percent. But since the most recent increase is off of a higher base, the dollar increase is higher. Here’s what I mean:

  • Assume the original premium was $10,000
  • Last year’s 13.2 percent increase would have made it $11,320, an increase of $1320
  • This year’s 12.2 percent increase would have made the premium $12,701, an increase of $1381
  • The figures for PPOs and POSs tell a similar tale:
    • $1401 vs. $1300 increase for the PPO
    • $1345 vs. $1300 increase for the POS

We just can’t greet these sorts of announcements as good news. Only when decreases are at or below the rate of overall inflation will we be making real progress. In the meantime the health care cost problem is compounding.

June 19, 2006

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