Trend – A Liar’s Game?

Trend is a fancy word for medical inflation. We all know that health care costs go up every year. We expect our health insurance rates to increase to cover the higher health care costs. Makes sense.

But, who calculates trend? Carriers do, and make sure you know it. Trend, they pontificate, is the evil ingrediant in ever rising health care costs. More than advanced technology, aging population, new government mandates, trend is why your health care costs go up every year they reason.

Recently we looked at a Humana and a Cigna renewal on two different groups. Both used a trend factor of about 14%. What that means is that both carriers project that health care costs are going to go up next year by 14% and they offered renewal rates accordingly.

Other carriers are using just about the same number.

But, a recent report released in November by New York based Mercer L.L.C. shows that trend is 6.9%, up from 5.5% last year (Business Insurance, November 22, 2010).

If Mercer is right, then how do carriers come up with a figure double that?

Or do the carriers know something we dont know? Do their PPO contracts contain escalator clauses which guarantees their providers a pay raise year after year? Do PPO escalator clauses drive up health care costs?

Editor’s Note: We know that a few actuaries visit our site on occassion. We welcome their response to this post. Leave your comment/s at