Before you sign
A fully insured renewal usually arrives 60 to 90 days before the plan year starts. That's enough time to ask questions, see options and, if needed, get competing quotes. It isn't enough time to wait.
These seven questions work for any group, but a few answers change for small groups (usually under 50 employees). Those differences are noted below. Send them to your broker as soon as the renewal lands. The answers tell you whether the number holds up, and where there's room to move.
The seven questions
1. What's driving the increase beyond trend?
Medical trend, usually 8% to 11% a year right now, is the one piece you can check against published surveys. Everything above it comes from your group or the carrier's terms. Ask for the increase broken into its parts.
| Driver | Factor | Points |
|---|---|---|
| Medical trend | × 1.090 | +9.0 |
| Your claims experience | × 1.020 | +2.0 |
| Large claims and pooling | × 1.010 | +1.0 |
| Age and enrollment changes | × 1.008 | +0.8 |
| Carrier fees and margin | × 1.007 | +0.7 |
| Total renewal | × 1.140 | +14.0 |
Carriers usually multiply these factors rather than add them, so the points are approximate and add to slightly less than 14. The factors should still multiply to the total.
2. What claims period is this based on?
Renewals are priced on a past window of claims, often 12 months ending five or six months before the new plan year. Recent months are usually incomplete, so carriers add an estimate for claims not yet paid, called IBNR.
3. How much did our own claims count?
Larger groups are experience-rated: the carrier blends your claims with its standard manual rate. The weight your claims get is called credibility. Small groups are priced on the carrier's whole pool, so their own claims don't count at all.
If your claims went down and the renewal still went up, here's why that happens.
4. Were any large claims pooled, and is that member still on the plan?
Many carriers pool large claims: they take out each person's claims above a set amount and charge a pooling fee instead. Pooling protects you from one big claim. It also matters whether that claim is likely to continue.
5. What are the carrier's fees, and how did they change from last year?
Part of every premium pays for things other than claims: administration, taxes and fees, risk charges and profit. Across commercial health plans, these costs average about 15 cents of each premium dollar (AHIP). They're usually shown as a percentage of premium, so on a $1.5 million plan, each point is $15,000 a year.
On a renewal exhibit, this line is often labeled "retention." Here it means what the carrier keeps, not how many employees stay on the plan.
The ACA's medical loss ratio rules limit how much carriers keep, but they're measured across the carrier's whole market, not your plan. They don't cap the fees on your renewal.
6. What are our options?
The renewal is one price for one plan. Ask to see others: a higher deductible or different copays, a narrower network, changes to how much the company contributes, other carriers, or a different funding approach such as level-funding.
7. Is this the final offer, and when do we need to decide?
A first offer is often a starting point. Carriers sometimes revise a renewal once a broker asks questions, changes plan design or brings competing quotes. Competing quotes take time and need a current employee census and claims data, so ask early.
Send them to your broker
- What's driving the increase beyond trend? Can we see each piece?
- What claims period is this based on, and how much of it is estimate?
- How much did our own claims count, and what manual rate was used?
- Were any large claims pooled, at what level, and are they ongoing?
- What are the carrier's fees, and how did they change from last year?
- What are our options, with prices?
- Is this the final offer, and when do we need to decide?
If the answers don't add up, get an independent second opinion.