April 2009 Public Sector Letter, "Managing Through Fiscal Stress: Avoiding Health Plan Side Effects During an Economic Recession"
A recession can put added pressures on group health plans, if plan sponsors are unprepared. Actuaries and underwriters have long understood that spending on health care, unlike other forms of insurance, is highly sensitive to consumer and provider behavior. In tough times, the pattern becomes more pronounced. When individuals are worried about the security of their jobs, they may increase some forms of utilization of their health benefits and cut back on or delay other services that may prevent costly complications in the future.
A seemingly logical assumption is that use of health care services, like other services, declines dramatically in a recession as consumers cut back on their spending. However, experience has shown that might not be the case. In fact, health expenditures remain significantly higher than increases in the consumer price index, even during recessions.
This Public Sector Letter discusses strategies for mitigating increased health care utilization in tough times. It also touches on an additional concern in the current, severely distressed and rapidly changing financial services environment: the stability of insurers.