Employee Benefits Insights
Secure a Fair Renewal With a Comprehensive Underwriting Review
SEPTEMBER 6, 2022
For employers, preparing for a renewal can be one of the most frustrating processes associated with their employee benefit programs. Many organizations do not understand how their health plan renewal is calculated, nor are they aware of the sources of revenue for the insurance carrier embedded within the renewal pricing.
Not having a clear view of what goes into your renewal could result in thousands of dollars in excess premium. How your plan is impacted depends on the type of plan:
| Fully Insured | Self-Funded |
|---|---|
|
When calculating renewal pricing, insurers often factor in higher-forecasted medical trends (read more on this below), inconsistent credibility weighting, and inflated claims reserves to generate additional revenue. Employers with large specialty prescription drug claims also add significant revenue for insurers that also own the pharmacy benefits manager (PBM). Read more about how fully insured plans can be impacted by unchecked renewal pricing. |
Insurers or third-party administrators (TPAs) generate revenue from administration fees, but those fees typically make up less than 40% of the total profit. The insurer or TPA generates remaining revenue from claims-based fees embedded in the renewal, such as network access, shared savings and capitation (per employee, per month fees). Insurers often present a nominal administration fee increase (typically less than 5%) as a benefit to the employer during renewal. However, the insurer does not mention the revenue boost it will also receive from the medical claims trend of 7% to 9% (see more on this below). |
Pharmacy spread pricing and rebate conditions baked into PBM contracts can also contribute additional revenue for the carrier and/or PBM.
What Is Medical Claims Trend?
Medical claims trend is the projected increase in the cost to treat patients from one year to the next, assuming benefits remain the same. Insurance carriers use these projections to calculate health plan premiums for the coming year. For example, a plan that costs $10,000 per employee in year 1 will cost $10,700 in year 2, and $11,449 in year 3, assuming a 7% trend annually.
A renewal negotiation that fails to categorize all claims-based revenue, including rebates, as administrative expense (i.e., insurer profit) is a flawed process. Understanding the various components that impact the cost of your renewal can give your organization a better starting point to negotiate pricing with the insurer.
A Comprehensive, In-Depth Approach to Renewals
Insurer renewals start with inflated assumptions across multiple line items. Often, an insurance broker simply checks the insurer’s math or starts negotiations from an inflated renewal amount. USI Insurance Services’ actuarial team has developed an underwriting assessment process to thoroughly analyze the renewal and identify opportunities to reduce excessive renewal pricing.
USI uses claims data and underwriting principles to model what a fair renewal should be for a client and compares our renewal assessment to the renewal proposed by the insurer. This process is more effective than taking the health plan out to bid with the inflated renewal as the starting point, and provides transparency into the renewal calculation.
For fully insured employers, we use our assessment to begin negotiations with the insurer, which often leads to an additional 3% to 6% reduction in renewal premium. Combined with additional negotiated rate decreases of 5% to 7%, our analysis can help reduce final renewals 8% to 13% from the initial proposed amount.
For self-funded employers, our process helps identify undisclosed sources of additional revenue for the insurer, helping to reduce expected costs by 3% to 4%. Ensuring maximum credits for PBM rebates can reduce administration fees by more than 50%.
How USI Can Help
USI’s in-depth understanding of the various financing and plan design tactics insurers use to generate profit helps us identify cost-drivers embedded within the renewal, and negotiate lower rates for our clients. Our team of more than 280 underwriters, actuaries and analysts, with decades of underwriting experience from a wide variety of backgrounds, work collaboratively with benefits consultants to review and negotiate health plan renewals.
To help employers understand what is impacting their renewal increases, USI uses our Comprehensive Underwriting Analysis tool to analyze key components of a renewal and identify critical opportunities for negotiation with insurers, including:
- Claims forecasts
- Hidden profits
- Fees
- Manual rating credibility
- Pooling and large claims
To learn more about how we can help with your health plan renewal and other strategies to reduce health plan costs, contact your local USI benefits consultant or email ebsolutions@usi.com.
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