The Rule of 72 and Health Insurance

Kaiser reports that average family premiums increased by 7% in 2023, marking a significant rise for many individuals and families.

Health insurance premiums have historically fluctuated based on healthcare trends and claims experience. Increases of 7%, 15%, and even 20% have become commonplace. Even a 7% increase, while deemed acceptable by some in the current economic climate, is often unsustainable over time.

Using the Rule of 72 to illustrate this, the situation becomes concerning. The Rule of 72 estimates the number of years it takes for an investment to double. This is done by dividing 72 by the annual growth rate. This same formula can estimate how long it will take an expense to double given a set rate of increase. For instance, if premiums increase by 7% annually, they would double in approximately 10 years. An average rate increase of 15% would lead to premiums doubling in about five years.

These trends highlight the need for sustainable solutions in health insurance planning. There are strategies available to mitigate these increases, which I can discuss and implement with your health plan. Let me demonstrate how these strategies can work for you.

Patrick Thornton is a former HCA Hospital CFO and currently works as a risk management consultant for health insurance industry. He is passionate about the healthcare delivery system and helping employers find solutions to the rising costs of health insurance.