How a Comprehensive Underwriting Analysis Can Lead to Better Health Plan Renewals
SEPTEMBER 7, 2021
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.
A Comprehensive, In-Depth Approach to Renewals
USI Insurance Services has an in-depth understanding of the various financing and plan design tactics insurers utilize to generate profit. Our team of more than 280 underwriters, actuaries, and analysts have decades of underwriting experience from a wide variety of backgrounds, such as regional and national health insurance, reinsurance, and life insurance carriers, as well as other insurance brokerage firms.
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. USI then compares this to the renewal proposed by the insurer and identifies 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.
USI’s Comprehensive Underwriting Analysis: Key to Negotiating Better Renewals
To help employers understand what is impacting their renewal increases, our expert team developed a unique proprietary tool called the Comprehensive Underwriting Analysis that analyzes the following key components of a renewal:
- Claims forecast
- Hidden profits
- 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.
Uncovering Savings Opportunities
An organization with 700 employees was spending $2.9 million annually on its health plan and was struggling with low enrollment. It had not changed its benefits in more than nine years, as the incumbent broker wanted to maintain Affordable Care Act grandfathered plan status.
The organization completed USI’s 2021 Benefits Benchmarking Study (BBS), which showed that its benefits were not on par with companies of similar size and industry. USI inputted the renewal data into the Comprehensive Underwriting Analysis tool, which uncovered $261,000 in health plan premium savings that the incumbent broker had failed to negotiate. USI presented the results of the analysis and proposed various plan design changes to make the health plan more affordable for employees, boost enrollment and lower total benefits costs.