Surety bond prices up on Medicare activity

YOUNGSTOWN, Ohio - The price of surety bonds is rising on increased Medicare activity and drops in credit scores, insurance brokers say.

“From what I've heard from customers that have shopped for surety bonds with us, they have noticed everything from a little to a pretty decent price increase from the carrier they're currently with,” said Bill McMahon, account executive at Cailor Fleming Insurance, which has not increased its bond prices.

Medicare began requiring that HME providers carry surety bonds—glorified, secured lines of credit, McMahon said—of at least $50,000 in 2009.

Increased claim activity from Medicare is the main driver behind the price increases, said McMahon.

“With that $50,000 guarantee, basically Medicare goes in and whether they suspect fraud or overpayment, in some cases, they're going straight to the surety instead of to the carrier,” he said.

In some instances, the increase in claim activity is compounded by tighter credit requirements—the result of the growing number of bankruptcies nationwide—or by changes in the credit scores of the business owners buying the bonds, McMahon said.

All of these factors have resulted in not only higher rates but also increased scrutiny by insurers, said Michelle Newman, senior bond associate at VGM Insurance.

“We're seeing surety companies doing more detailed underwriting—just looking at everything a little closer than we would have a few years ago due to that increased risk,” she said.

This new environment seems to be sending some providers shopping around. Cailor Fleming receives, on average, five calls a day from people looking for a better price on surety bonds or trying to consolidate where they buy their insurance products, McMahon said.