How fast are health insurance premiums growing and what is driving underlying health care cost growth?
The mid-1990s brought about a health care inflation miracle. At a time when the economy was prospering and employment was high, health care cost inflation was low and actually grew at a slower rate than the overall economy. However, starting in 1999, health insurance premiums again began to escalate. In 2001, health insurance premiums increased by 11.0 percent, the largest single-year increase since 1991. Health insurance premium growth was high in the early 1990s, declined during the course of the decade, became virtually flat in 1996, and then increased thereafter (figure 5).7 Two reasons exist for the increase in health insurance premiums: the underwriting cycle and an increase in the rate of growth of underlying health care costs. The underwriting cycle begins when health plans experience what are called “underwriting profits.” The early 1990s were such a period for health plans. Premium revenue exceeded cost growth for health plans; therefore, plans gained profits and increased th
