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.
Trend includes:
- 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 protected].
