Group health insurance renewals, a critical part of the employee benefits planning process, are time consuming and stressful for everyone involved — employers, employee benefits brokers, and insurance carriers alike.
We’ve yet to meet an employer who enjoys hearing about how their rates are likely increasing...yet again. And no employee likes to find out their premiums, deductibles, and copays are going up, let alone that they have to choose a new medical plan and a new set of healthcare providers because you’re changing carriers — again.
As an employer, it’s also hard to know if you’re getting a good deal on your health insurance renewal as the components of pricing are complex and seemingly nebulous. It’s not all cloak and dagger though, and with knowledge comes understanding. Therefore, it’s important to understand what goes into a health insurance renewal so you and your employee benefits advisor can negotiate better rates for your business.
The Three Major Purposes of Annual Health Insurance Renewals
While the process can be tedious, annual health insurance renewals serve three major purposes:
- First, they provide employers with the opportunity to switch insurance carriers or health plans, as well as adjust contribution levels, prescription drug formularies, eligibility rules, and coverage decisions (just to name a few of the many plan design options which can be modified).
- Second, they allow insurance carriers the opportunity to update plan options, rules and regulations, and most importantly, reassess the estimated risk of covering your group for the upcoming year.
- Third, they allow both insurance carriers and employers to renegotiate pricing for the upcoming year.
Health insurance renewals don’t have to mean a change in carriers — in fact, there’s a lot to be said for sticking with the same providers year-after-year. But that being said, there’s nothing wrong with trying to get a better deal, especially if circumstances have changed and most especially if you can make a fact-based case for your appeals. This is much easier to achieve if you work with an employee benefits broker with underwriters on staff who can negotiate on a peer-to-peer basis with carrier underwriters (more on that later.)
Understanding How Trends Impact Your Health Insurance Renewal
One of the key factors in calculating a health insurance renewal is "industry trend" — a prediction of how much healthcare costs will rise over the upcoming year. Each year, carriers set their own prices based on various factors surrounding trends, including the current healthcare inflation rate, expert forecasts, and their own experience with your current and previous years' claims.
Health insurance trend is made up of four main components:
- Inflation: Prices for goods and services typically increase over time and should be considered when projecting future costs.
- Cost shifting: It’s common for providers (and insurers) to shift costs from discounted payers (such as Medicare and Medicaid enrollees, and the uninsured) to those who are enrolled in more “traditional” plans (such as those enrolled through employer-sponsored health insurance).
- Utilization of new technology: Advances in medicine and medical technology often change the cost of services (and not necessarily for the better). Health insurance carriers must take this into account when determining their trend factor. In recent years, advances in speciality pharmacy have actually outpaced those in the medical arena, in terms of impact on trend. Many of these costly and complex drugs provide amazing results but at a significant cost.
- Deductible leveraging: One of the reasons copays and deductibles have increased over the past decade is because claims costs have increased. Even if fixed costs (like copays) were to stay the same, the cost of medical services would still increase, leading to higher claims expenses.
Keep in mind that the impact each component has on the trend factor and the overall cost is difficult to ascertain, so they must be evaluated separately on an individual basis.
It’s important to understand the influence of trends on your health insurance renewal. We’ve just scratched the surface here, but your employee benefits broker should be able to provide greater detail on healthcare industry trends that impact you geographically.
The Health Insurance Renewal Negotiation “Dance”
As with every negotiation, it’s not uncommon for insurance carriers to kick off renewal negotiations with a rather substantial proposed increase in rates versus the prior year. This is a common negotiation tactic known as “setting the anchor point.”
Provided you’re working with a talented employee benefits advisor, they’ll examine all the assumptions that the carrier used to determine the new rate and challenge anything they take issue with. For example, the benefits broker could make a case (and often does) for discounting a particular issue driving a portion of the cost increase because it isn't likely to occur again or the claim has run its course.
Once again, this back and forth works best at the peer-to-peer level, so it’s best to work with an employee benefits advisor with underwriters on staff who can “walk-the-walk and talk-the-talk,” so to speak. Underwriter-to-underwriter discussions tend to be more fact-based than gut-based and they’re typically able to keep emotions out of the equation.
Other factors driving rate adjustments are sometimes irrefutable, such as a year-over-year change in workforce size, location, or demographic make-up (such as having the average age of your workforce shift due to significant retirements or new hires at the entry level).
If you’re dealing with a fully funded plan, the medical loss ratio (MLR) limits of the Affordable Care Act (ACA), also known as the 80/20 rule, help keep SOME of the line items in check. This rule stipulates carriers must spend at least 80 percent (85 percent in the large group market) of collected premiums on medical care and efforts to improve the quality of care. If they don’t, they must rebate any excess premium charged, essentially capping carrier profits at 20 percent (15 percent in the large group market). Lest you let your guard down, there are still plenty of components of fully funded plans which require due diligence in terms of close examination every renewal season.
That being said, self-funded plans work a bit differently in that carriers are exempt from the ACA's MLR mentioned above. This requires even more due diligence on the part of your benefits broker who should know what hidden costs to look out for, such as evolving definitions of claim expenses, spread pricing, shared savings, and other benign-sounding euphemisms.
Other components of medical plan design which merit close examination each renewal cycle include administrative costs, provider networks, and prescription formularies, just to name a few.
Other Actions You Can Take To Set-up A Great Renewal
As we’ve said on many occasions, cost containment is not a once-per-year effort during health insurance renewal season, but rather a sustained effort throughout the year to ensure you’re keeping your benefits costs as low as possible (remember that claims history plays a part in trend analysis). With that in mind, the best thing you can do to set yourself up for a great renewal is to actively manage your costs.
An ideal cost containment strategy requires a constant effort in many areas:
- chronic condition identification and management
- medication adherence
- large-scale claims intervention
- consistent execution of a sound wellness program
- financial oversight
- diligent carrier reconciliations
Waiting until renewal season to address these concerns is far too late — not much can be done to mitigate your increase at that point. Your claims history for the year has already been accounted for and will affect your health insurance renewal costs.
You and your employee benefits broker need to work together all year if you hope to lower your costs (or even just keep them from increasing) in the upcoming year. If your broker isn’t reaching out and offering to help you all year, it’s time to find a new one.
At the end of the day, the healthiest partnerships are ones where each party feels like they are being treated fairly. Carrier partners who attempt to extract outrageous year-over-year increases are no better than employers who expect a carrier to cut their rates to the point where they'll lose money - neither of those positions will foster a long term partnership.
Are you concerned about your next health insurance renewal? Leave us a comment below or contact us. We’d love to hear from you!