How to Optimize a Fully-Insured Health Plan Renewal

Disclaimer: The following article does not entail that I am advocating for companies to enter into fully-insured health care contracts. However, I hope the following insights will prepare you to navigate the process more effectively.

Renewing a fully-insured health insurance plan can be a complex process and difficult process for many employers.? However, partnering with a consultant who takes a proactive and strategic approach, will help businesses to optimize their plans for better cost control and comprehensive coverage for their employees. Here are key steps and considerations for negotiating fully-insured health insurance renewals.

1. Start Early

Begin the renewal process at least six months before the renewal date. This allows ample time for negotiations and exploring alternative options. Many carriers release the renewal 60-90 days before the renewal date, depending on tenure and size. However, a solid broker will request the renewal early. Carriers balance client persistency with rate execution and often prefer locking in renewals early to better manage their block of business.

2. Evaluate Risk Management Opportunities

In its simplest form, higher risk = increased cost of insurance. Finding ways to minimize the risk profile of your group will translate to reduced cost and increased sustainability.

3. Have a Solid Renewal Strategy

Don’t settle for the status quo. Have your consultant send your account to competing carriers to get multiple quotes and options. This competitive process can lead to better rates and terms. There's a misconception that marketing fully-insured plans annually leads to market exhaustion. This is simply not true. Carriers are always looking to increase market share and grow their fully-insured blocks. This status quo bias leads to more profits for the carriers.

4. Treat Your Renewal Like It's Self-Funded

Analyze all components individually, just as you would with a self-funded renewal. Break down the costs for administration, stop-loss coverage, and prescription drugs (Rx) to get a clear picture of where your premium is going.

5. Understand Carrier Profits and Use Them as Leverage

While most people understand that carriers pay the doctors and hospitals, leading employers to bear the costs through increased premiums, the intricacies of how these costs are calculated often go unnoticed. Larger employers, being more predictable, have renewal calculations that reflect actual claims experience. However, hidden within these claims are numerous profit-generating items for the carrier. These include inflated trends, inconsistent credibility weighting, and inflated claims reserves. Additionally, capitation fees for disease management, care coordination, and out-of-network shared savings are often paid to another division within the carrier, adding to the carrier’s profit. Companies that spend more on claims, known as higher utilizers, generate significant profits for the carriers.

6. Scrutinize Pharmacy Claims

Pharmacy costs are particularly complex, as the distributor, either the PBM or carrier, marks up the cost of the drug from the manufacturer, a practice known as spread pricing. This spread can vary daily and from employer to employer. Furthermore, drug manufacturers offer rebates and bonus incentives to distributors based on sales quotas. These sources of profit, such as spread pricing, rebates, and bonus incentives, are often concealed from employers within the claims line item on the renewal

7. Challenge Underwriting Components

Carriers often inflate underwriting components, including medical and Rx trends, plan design changes, claim reserves, and enrollment shifts. Prudent consultants will independently underwrite these components and challenge carrier underwriters to ensure fair pricing.

8. Review Large Claims Independently

Carriers often inflate large claims projections. It's essential to have your broker conduct an independent review of these claims to ensure they are accurate and not overstated.

Conclusion

Optimizing a fully-insured health plan renewal requires a thorough and strategic approach. Ultimately, companies can play the game better by working with consultants who control the narrative in the negotiation process.? By treating the renewal like a self-funded plan, independently reviewing large claims, understanding carrier profits, challenging inflated underwriting components, and maintaining a competitive renewal strategy, businesses can secure more favorable terms and ensure comprehensive coverage for their employees. With careful planning and expert negotiation, it is possible to navigate the renewal process successfully, ensuring both cost control and comprehensive coverage.

Contact me at [email protected] to learn more about this topic or other health care funding strategies.

This newsletter is intended for informational purposes only and should not be considered legal or financial advice.