Health care costs, and consequently, employee health benefit costs, have been increasing at an alarming rate during the past decade. According to Kaiser Family Foundation, the cost of providing family coverage under a group health plan has increased by 114 percent since 2000 to a staggering average of $13,770 per year.
This varies by region as the average cost to provide family coverage under the most popular type of plan, a PPO (Preferred Provider Organization), in the Northeast is $14,917. Employees are also under financial pressure as their contributions have increased by 147 percent during the same period. Employees spend, on average, nearly $4,000 per year to cover their family.
“The financial impact of your annual renewal is significant to both your company and your employees,” says Chuck Whitford Jr., CLU, ChFC, a consultant for JRG Advisors, the management company for ChamberChoice. “It is important to be prepared and to understand what your renewal consists of. This includes knowing what alternatives exist to ensure you select the best plan for your company and employees.”
Smart Business spoke with Whitford about medical benefits renewals and what to evaluate when doing them.
When should a business begin preparing for benefits renewal?
Preparations should begin well in advance of when you receive the renewal from your insurance company. Experience rated employers that have access to claims utilization (generally those with 100 or more insured employees) should review their claims at least quarterly with their benefits advisor, who should also be analyzing this data to find cost-saving opportunities and monitor the actual group’s experience prior to renewal projections.
Regardless of size, all employers should review benchmarking data to compare their plan to other companies based on factors such as demographics, average cost, employee contributions and plan design (deductibles, co-payments, coinsurance, out-of-pocket maximums, etc.). This information can be useful when evaluating plan design changes (such as raising deductibles or co-pays, offering a consumer-driven plan or increasing employee cost-sharing in other ways) as you prepare for the renewal.
How are potential savings projected?
Once you have identified potential changes, your benefits advisor should project the savings (relative to current cost) that each will provide. This is also the time to consider conducting an employee feedback survey. The survey can serve a dual purpose by foreshadowing possible changes and assessing the relative popularity of the choices presented. For example, a majority of employees might want to choose a lower-cost plan or they might prefer to contribute more each month to maintain the current plan. The survey results can be used effectively in employee education communications.
Employers that provide a traditional health plan (typically an HMO or PPO with a low or no deductible) should consider a high deductible health plan (HDHP). These plans encourage employees to better understand the real cost of services and lead them to become better health care consumers. It is important to provide ongoing education to achieve a successful HDHP enrollment.
What items factor in to a benefits renewal?
One of the most significant factors in calculating any renewal is trend. Trend is a prediction of how much health care costs will rise over the next policy year. Every year, insurance companies set their own trend level based on last year’s health care inflation rate, analysts’ forecasts and their own experience. For 2010, the annual trend for PPO plans is approximately 11 percent.
- Inflation — the increase in the per unit cost of service.
- Cost shifting — providers shifting costs to make up for ‘discounted payers,’ typically government programs and the uninsured.
- Utilization/new technology — the increases in the number of services consumed as well as the introduction of new technologies, drugs and therapies.
- Leveraging — as employee cost-sharing (such as co-pays and deductibles) remains unchanged for a number of years, there is greater claim cost to the plan because the cost of services increases. For example, if a plan has a $500 deductible, a service costing $2,500 costs the plan $2,000 in the first year. In year 2, that service now costs, say, 10 percent more, or $2,750. The deductible is still $500, so the cost to the plan increases to $2,250.
What else should be evaluated in a benefits renewal?
After looking at costs, savings and trends, evaluate your current insurance company. Are you utilizing every service that they offer? Consider the in-network provider access and usage level, the tools they can provide to help employees make the best purchasing decisions based on quality and cost, and online services that assist with plan administration. Be sure to compare these items to other insurance companies if you request bids from other insurers.
Developing a renewal strategy with reasonable timelines and appropriate communication with your employees will make the renewal process more effective. Your benefits advisor should be an integral part of the renewal process as well as your long-term strategic planning.
Chuck Whitford Jr., CLU, ChFC, is a consultant for JRG Advisors, the management company for ChamberChoice. Reach him at (412) 456-7257 or email@example.com.