Macro Thoughts #1

The official inflation numbers hit 9.1% today YOY. Lots of factors impact this, from war and supply shortages.... to too much stimmy & currency debasement following Covid19.

How will this impact health insurance rates?

Costs for medical services increase as the cost for goods, services and labor all increase. This has an inflationary impact on rates, just like every industry ("number go up").

On the other hand, with the fed raising interest rates into an earnings growth slowdown, we will have a destruction of demand (hint: recession).

When this occurs, people forgo elective healthcare procedures to save money as their dollars don't stretch as far for basic needs like food and shelter. This can have a deflationary impact since the frequency of visits is dropping ("number go down").

As a secondary impact of forgoing healthcare procedures, we will eventually see an uptick in large claims because preventative care will get foregone. For example, get care now = Cholesterol meds vs. decide not to get care because it's too expensive = heart attack).

This year (2023), I would expect that we see higher than usual medical renewals as inflation has far outpaced any reduction in demand.

In 2024, I would expect lower than usual medical renewals.

Of course, this is highly contingent on your company demographics and claims data. I am speaking much more on a macro basis.

If anyone has any comments or questions, I'd enjoy a discussion either in my DMs or in the comments below.

UPDATE #1

Since 1955 to 2018, a negative 10-2 spread has predicted every upcoming recession within 6-24 months of its actualization.

Right now we are at -0.37%.

Not exactly a good sign.

Good counter arguments are that quantitative easing by the fed had created increased demand in risk markets and therefore the 10 year yield should be higher.

But, with inflation hot, interest rates rising, job market softening, earnings growth negative for 2 qtrs.... I think it seems likely.

Because of these factors, I see it more like an L shaped recovery than a V.

From a health insurance perspective, it is definitely a good time to stay aggressive in rate negotiations. We can help.

UPDATE #2

My first 3 renewals are in for 1/1/2023.

+21%, +19.5%, + 19.2%.

These groups all had abysmal claims spend— but the market is pricing that in and then some.

It appears this will be a higher renewal price increase YoY than typical.