Health Insurance

Ask the right questions.

Over the last 10 years, renewals in health insurance have varied from low single digit increases to the mid-twenties and as of recently, settling around 10 to 12 percent increases. The real concern is how can these increases be controlled and what questions should be asked to determine if an increase is warranted?

There are several factors that affect renewals in health care: trend, losses, demographics and location. Although most health insurers are calling “trend” around 10 percent, that is an extremely misleading number. The carriers will cite inflation and contract negotiations, as well as new medical technology; however, there is profit loaded into that number. To say that health insurance costs increase by 10 percent or so per year is not accurate.

Losses incurred are another misleading indicator. In small group markets (groups of fewer than 50 lives) a company is penalized if there are large losses, but not credited if the group is running below the norms. In too many cases, a group will be running great and still a “trend” increase of 10 percent is issued. Groups of greater than 50 lives are greatly impacted by losses due mostly to the fact they are no longer protected by HIPAA privacy regulations and guaranteed issue requirements. Know your real losses. Groups from 50-150 lives will get limited, if any, loss information. So now, utilization, losses and large claims are kept “secret” by carriers. This leaves the group to take the word of the incumbent carrier that the renewal increase is warranted. Remember, this is applicable to fully insured plans only.

Demographics and locations for groups under 150 lives follow the same carrier justifications as losses. It is not uncommon to see an increase stating “the population changed” or “shift in demographics.” What this means is the group’s population aged, there are fewer families or even more females than males covered under the policy. Last but not least, industry classification changes that affect risk pools can be a factor. These seem to be the final catch-alls to justify an increase.

For groups over 150 lives, most of the information should be available depending on the carrier and state. For groups over 200 lives, it is available and imperative that it is not only received, but explained and understood.

When reviewing renewals and impending increases, most organizations look to cut benefits in order to control costs. Although this might achieve short-term cost control, there is only so far a benefit can be stripped. Raising deductibles, raising co-insurance, decreasing the drug card benefit and increasing co-pays are all alternatives. What are your competitors offering? How will this affect office morale or perception? How is the plan actually being utilized? These are questions that must be considered. As discussed earlier, depending on group size, this information might not be available. If an employee is out for an illness in a smaller company, it is usually common knowledge. Certainly, it is a violation of the privacy laws governed by HIPAA to inquire. If deductibles are seldom met, increasing deductibles may be a correct move with little effect on the overall employee population. The same holds true for co-pays and co-insurance terms such as 100/80, 90/60, 80/60 and so forth.

As rates increase, plan design becomes increasingly important. The trend to supplement an existing PPO plan with additional plan designs ranging from HMOs to High- Deductible Health Plans including HRAs (Health Reimbursement Account plans) & HSAs (Health Savings Account plans) have also been utilized, but are not compatible for all companies. These plans have become popular to cut costs, but if not considered carefully, may have the opposite effect. Seldom is the company contribution considered when looking at the pricing of these plans. The total cost must be the bottom line.

The final piece of the puzzle is corporate contribution to health care. Routinely, the most common question asked is, “what is the contribution level from other companies?” This is actually a very complex question. Different industries have different standards, as well as different company sizes. Not-for-profit versus privately owned versus partnerships versus publicly held companies versus government employee plans all fall in their own categories. Lastly, who is employed matters as well. Seasonal, family members, salary and hourly employees all have different requirements. Be sure to compare yourself in similar situations, in similar industries. Benefits have become more important than ever and it is not uncommon to see someone take a new job for the same, or lower, salary with an increased benefit level.

With health insurance premiums going up every year, it is more important than ever to become better educated in the utilization of your plan and also be in touch with the true needs of your employees. While low deductible plans look good on paper, to a group of 20-year-old employees, this is a waste of money. Alternatively, to a group with an older population, High Deductible Health Plans could adversely affect your employees’ personal cash flow and hurt morale. The hard questions must always be asked. “How is our plan utilized?” “Do we have access to loss runs and if not, what are the major claims?” “What is the average corporate contribution of a similar business in my area and what benefits are being offered?” “By taking away or stripping down some benefits, what can be added to replace them, such as ancillary lines of coverage, FSAs, etc.?”

In today’s age, benefits are commonly the second largest expense next to salary. The annual health insurance renewal meeting has become increasingly important and worthy of your time. Ask the appropriate questions; it will pay off in the end.