The most common question I hear from our clients and their employees, is “Why is health insurance so expensive?” This is frequently followed by the exasperated comment the family insurance premium each month is more than the house and car payment combined.
There are many factors that contribute to the cost of medical insurance, but mandated benefits are one of the primary cost drivers outside of the typical medical claims cost.
If you are not familiar with what I am talking about you might ask “What are mandated benefits?”
Mandated benefits are coverages governmental entities tell insurance companies they must add to the medical policy and agree to pay for. And, that means you, the policy holder, pay for it in the premium cost each month.
This is not a discussion of whether or not these benefits are good or bad, it is a discussion of what these are and how much these benefits can add to the cost of your policy.
Here is an example of a mandated coverage.
“On February 4, (2022) additional guidance was issued on the federal mandate requiring health plans to provide over-the-counter COVID-19 tests at no cost to participants…”(Jessica Waltman, Forward Health Consulting).
That means, if you are insured, you should be able to go to a pharmacy and pick up one of these tests with no co-pay, or any other cost to you at the pharmacy.
These tests, and their distribution, are expensive, and somebody has to pay for it. This is how it gets paid for. The federal government adds a mandated benefit to every qualified employee benefit medical plan to cover it.
Now let’s look at how that impacts premium cost.
The cost for these tests is inconsistent, but they seem to range between $20 and about $1,400 depending on the test, where you get it, and how much hurry you are in. For this discussion I’m assuming an average cost of $130 to get an “approved” over the counter take home COVID test kit.
Now we do some math.
Assume your employer has 25 employees and the medical plan has to assume everybody might get one of these test kits. 25 employees at $130 per test is $3,250 annually, which would add $271 to the medical premium, per person, per month. Scary isn’t it? And I did not include dependent coverage.
The magic of insurance risk spreading comes into practice here. Your insurance company knows at least two things here. First, they cannot just add $271 per month to the plan because it is too big a cost increase all at once. And, they know that every covered employee will not really get one of these tests. But let’s say they decide to pay for the cheapest average test at $20, one time per year. That could add about $2.00 per month to the cost per employee per month.
And that is how mandated benefits increase the cost of your medical plan. And it might have you asking the question, would you prefer to pay the $20.00 if you want the test, or be forced to pay $2.00 more, per month, per person you have covered in case you might want that test?