There, there, you have nothing to fear. Insurance companies adjust their insurance premiums every year. Same as electricity bills and transportation costs, there’s a hidden mechanism that determines the changes in insurance rates! However, before delving into the reasons behind premium increases, you must first understand the 2 main components of a medical insurance premium:
Standard premiums are set by insurance companies. Most insurance companies adjust premiums based on individual factors, including age and health risks. Insurers’ annual premium adjustments are marked up or down based on medical inflation, risk pools, and claims policies.
Next, let the Bowtie team explain the 4 major reasons behind premium increases and go over the trends and reasons for premium changes with you!
If you have studied some of the major insurance companies’ premium estimates, you will find that the older you are, the more expensive your premiums will be. Therefore, based on your age when purchasing the policy, you can roughly estimate your annual premiums in the future.
We all will eventually grow old. No matter how strong and healthy you are now, the risk of disease increases as you grow older. Elderly diseases such as high blood pressure, diabetes, and heart disease will likely gradually emerge. Therefore, as the insured gets older, the average health quality of the risk pool the insured is a part of will deteriorate. Naturally, stronger demand for medical services will increase the overall settlement amount. Therefore, insurance companies will charge people of this age group higher premiums.
It is worth mentioning that most medical insurance products on the market will refuse to cover “pre-existing and known medical conditions.” Therefore, it is advisable to buy insurance at a young age not simply because of the lower premiums; the longer you wait, the more health problems you may have, and if you’ve been diagnosed with any serious illness, by then, even if you’re willing to pay expensive premiums, there might not be an insurer willing to accept your insurance application.
According to the latest figures published by a U.S. institute, even a healthy 65-year-old couple may have to spend an average of US$662,156 on health care. So if you want to plan for retirement early, you should buy health insurance while you’re still healthy. You can then better manage your medical expenses after retirement.
In addition to age, premium prices may also vary according to gender. In each age group, men and women are charged different premiums, which are calculated based on the illness or accidental hospitalization statistics for women and men in different age groups.
According to the results of medical research, there are also gender differences in the incidence rates of certain diseases. For example, the probability of men suffering from acute myocardial infarction is higher than that of women. Generally speaking, women’s premiums are higher than men’s between the ages of 30 and 45 because women in this age group have the highest incidence rate of gynecological diseases, such as vaginal diseases, uterine lesions, ovarian problems, etc. Conversely, between the ages of 46 and 55, men’s premiums will be higher than women’s as the occurrence of illnesses is the most common among men of this age group.
Women tend to be more mindful of their health and more willing to seek medical treatment. Therefore, studies have shown that women constitute the majority of claimants.
Habits that are taken into account include smoking and drinking. If the insured smokes or drinks excessively, their health usually suffers, and the risk of disease is also higher.
Medical data have shown that smoking is the main cause of lung cancer and increases the risk of heart disease, stroke, and diabetes. Therefore, smokers generally pay higher premiums than non-smokers. As for alcoholism, the main culprit affecting liver function, it can lead to liver cirrhosis and even liver cancer. Therefore, alcoholics are charged higher premiums than non-alcoholics.
Physical health is the main factor affecting insurability. Insurance companies will consider information such as the insured’s height, weight, diseases, treatments, surgeries, and examinations. In the eyes of ordinary folks, obesity and high cholesterol may only be minor issues. But that is not so from the perspective of insurance companies. Insurers consider these as risk factors that may cause serious diseases. Therefore, insurers may impose additional premiums or exclusions.
In addition to existing illnesses and symptoms, past illnesses or previous medical history are all health information that must be disclosed. Another thing that is easily overlooked is the medical examinations undergone. Even if you do not need a follow-up or take medications, you must truthfully inform the insurer of any abnormal medical test results when applying for insurance. Also, it has been confirmed that certain diseases, such as breast and bowel cancer, may be hereditary. Therefore, if the insured has immediate family members with a history of such diseases, such information has to be disclosed.
As mentioned above, medical inflation affects insurance companies’ annual premium adjustments. According to the “2022 Global Medical Trends Survey Report” by Willis Tower Watson, the global average healthcare cost is expected to rise by 8.1%. What factors lead to the variation in healthcare costs?
Medical costs are affected by various economic, social, and technological factors. In short, the aging population, the overloaded public hospitals, the rising demand for private medical care, the increase in drug prices, and the introduction of new treatment equipment all lead to rising medical costs. In addition, modern medicine is advancing rapidly, and the cost of pharmaceutical R&D is also growing. As a result, it has become the norm for pharmaceutical manufacturers to increase the prices of drugs. The increasing prices of new drugs, especially targeted drugs, have led to higher medical charges in hospitals.
As the operating expenses of insurance companies mainly consist of compensations to the policyholders, the insurers review the premiums every year according to the rise and fall of medical costs. And every year, since medical costs only go up and rarely down, it’s not hard to fathom why medical insurance premiums increase annually.
The increase in premiums also depends on the insurance company’s “gatekeeping.” For example, if the underwriting process is not stringent enough, the insurance company may not be fully aware of the physical condition of each policyholder. So, healthy and chronically ill policyholders may be placed in the same risk pool.
Suppose an insurance company has 1,000 clients, each paying SG$500 a year in premiums. The risk pool then has SG$500,000 a year. If many claims were filed that year, totaling SG$350,000, the risk pool would be under pressure, prompting the insurer to raise premiums. Even if you have not made a claim, the insurance company would still charge you more to offset the operating cost of maintaining the risk pool. In doing so, the insurer passes the risk to you, who has a “lower health risk.” Conversely, if the risk pool is relatively healthy and fewer people have filed claims, the insurer may lower prices, creating a win-win situation.
Therefore, a responsible insurance company takes the underwriting process seriously to ensure that the risk pool remains sustainable.
Everything has a price. Don’t make the mistake of thinking that the more lax the insurance company’s claims policies, the better. After all, the insurance company has to make a profit. The greater the number of claims filed and the higher the operating costs, the greater the likelihood of a rate hike in the following year.
In general, when someone experiences certain symptoms, they try to undergo several related examinations, such as CT, PET, MRI, etc. For the expenses incurred, the insured can apply to the insurance company for compensation, as long as these examinations are deemed reasonable by the doctor. The only problem is that the more the insured gets these tests done and the more claims made, the higher the following year’s premium rate.