Most employers have heard from a benefits broker, agent or consultant that if they change carriers too often, the market will decline to quote on their group.
Is this true? Are there penalties involved with changing carriers too often?
There has been a tremendous amount of misinformation regarding this subject, and the following facts should be considered when reviewing your benefits.
Even if you change every year, the market will still quote on your group.
The myth has been used to scare groups into renewing with carriers even when better alternatives were available. Some carriers may decline you but those that do tend to be the carriers that are not very competitive. The biggest determent to marketing your plan, if you change carriers every year, is the level of negotiating power.
If your agent is doing his or her job, that person should be able to negotiate rate relief of some degree. The level of rate relief can range from 5 percent to 30 percent, depending on the carrier and the benefit. Carriers may not give you the maximum rate relief if you change often.
What to do if you change
If you change often, be sure to keep your current carrier in the loop at renewal time. You must give your current carrier a fair opportunity to renew your business. Underwriters can carry grudges if they feel they were not given a chance to renew your group.
If you place all your cards on the table and your current carrier fails to renew your business, then it will understand and not be as upset.
Get assurances that your current carrier is given a fair shot. Some agents, brokers and consultants will insulate you from your carrier. Insist on meeting or communicating with your current carrier to ensure it understands what’s happening.
You will find that if you are giving your current carrier the last look, you may not be changing carriers as often as you were.
You can also hurt your negotiating power if you change carriers often for a minimal savings. Although costs are getting so high that even a slight variance in rates can add up to substantial hard dollars, the general rule is anything more than 5 percent is understandable.
The primary advantage of changing carriers is financial. New-age thinking states that changing medical carriers more frequently than every three years will cost you more in the long run.
The theory is that disease management and consumer tools need time to work. The fact that large claims drive most of your costs leads experts to believe that a strong disease-management program can be the most cost-effective tool in controlling costs.
If you change carriers frequently, it doesn’t allow enough time to engage the chronically ill members of your plan. Disease-management programs are not one-time events. They are a continuing process with frequent interactions with members.
Disease-management programs cover patients with asthma, diabetes, cardiac disease, lower back problems, obstructive pulmonary disease, depression and weight-management issues, to name a few. If the contacts, protocols and even programs themselves change frequently, member will be less likely to engage in these (mostly) voluntary programs.
Good habits are hard to form, even in the best environment. When the sources used to help members form and maintain new habits change, members get frustrated and quit trying to keep up with the changes.
So when does a company stop chasing the low rate and focus on managing its medical plan? This question is becoming more valid as the field of medical carriers continues to shrink.
The average time between a carrier and an employer ranges from three to five years. Can you maintain a carrier relationship for five years and still maintain competitive rates? The answer is yes.
The temptation is great when you see a low rate, but you need to explore the disadvantages of chasing the lowest costs.
Bruce Bishop (firstname.lastname@example.org) is director of marketing and managing partner of KYBA Benefits. KYBA Benefits provides consulting and administrative services to more than 400 corporate accounts, ranging in size from 20 employees to more than 7,000. Reach Bishop at (770) 425-6700 or (800) 874-2244, ext. 205.