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Do you understand how your organization’s health plan renewal is calculated? Employers are often confused and left with no explanation when final health plan renewal rates are 5% to 7% lower than the initial proposed renewal.
Frequently, the difference between the initial renewal proposal and the final rates can be attributed to competitive threats. The insurer anticipates that the broker may threaten to market the account to other carriers if the renewal rates are too high. This broker strategy is fundamentally flawed, as the starting point of negotiations are artificially inflated, resulting in discounts that leave a significant amount of excess profit for the insurer in the rates.
A thorough review of a renewal often exposes these areas of concern in renewal pricing, such as when the insurer uses overly conservative medical trends, inconsistent credibility weighting, and inflated claims reserves to generate additional revenue. Additionally, some insurers also inflate their administrative fees by using an inconspicuous mix of Per Member Per Month (PMPM) fees and Per Employee Per Month (PEPM) fees. This can result in fees that are too high if the wrong exposure base is used. These inflations are often unbeknownst to the employer, and serve as hidden revenue streams for the insurer that can easily add thousands of dollars to the renewal if left unchecked during the renewal process.
To protect employees and the bottom line of employers, companies must work with a broker with access to an in-depth understanding of the various financing and plan design tactics insurers utilize to generate profit. This understanding can only come by having a supporting team of underwriters, actuaries, and analysts sitting on their side of the table to advocate on their behalf.
These team members work collaboratively with benefits consultants to review and negotiate health plan renewals. The team starts by first utilizing claims data and underwriting principles to model what a fair renewal should be for a client so then it can be compared to the renewal proposed by the insurer and identifying the differences between them. This information is used to begin negotiations with the carrier, which often leads to an additional 3% to 6% reduction in renewal premium for the employer. This reduction, combined with the rate decreases of 5% to 7% as a result of competitive threats, can lead to final renewals being 8% to 13% lower than the initial proposals.
To help employers understand what is impacting their renewal increases, talk to your advisor about some of the following key components of a renewal workup:
Claims forecast
Hidden profits
Fees
Manual rating credibility
Pooling and large claims
This deep-dive analysis demonstrates the areas of inflation within the renewal that provide critical opportunities for negotiation with insurers.
Cynthia Borkoski is a Licensed Employee Benefits Consultant with USI Insurance Services. She holds a Bachelor’s Degree in International Business and earned her Master’s in Sales Management. Prior to joining USI Cynthia has been consulting businesses for the last 12 years helping business owners and executives with strategies to mitigate risk, increase employee engagement and manage healthcare benefits. For more information, contact your insurance broker or she can be reached at (786) 785-1173 or by email at cynthia.borkoski@usi.com.
