Self-Insured Medical Plans

[Guest jgf810]

I work for a company with about 10,000 employees. The company sponsors 3 self-insured medical plan options for employee to select from. The ER pays 92% of cost for the lowest coverage plan (Plan C), 85% on the middle plan (Plan B) and 78% of cost on the highest coverage (benefit wise) plan (Plan A).

The relative benefit value of the plans are:

Plan A = 112%

Plan B = 108%

plan C = 100%

A recent underwriting analysis showed that the current pricing for plans B & C are not in any means related to their relative benefit value. Plan A (this is a new plan) is priced correctly. However, Plan B is price 60% above its expected cost and Plan C in 20% below its expected cost. I am new to this company. But what has happened is these plans have only had minor benefits changes over a several year period. Each time the renewal period came up management decided to increase both plans premium equivalent rates by the same percentage.

My two questions are: does the pricing need to be changes to put the plans back inline with their true cost from any legal (compliance) stand point?

What would you recommend to correct this situation?

[GBurns]

You lost me.

If these are self-funded plans.. What do you mean by "Each time the renewal period came up "? Renewal of what? The stop loss insurance?? This would have very little effect.

What is the calculation rationale that creates "The relative benefit value of the plans "?

Why is there such a disparity between "The relative benefit value " and "the current pricing " and how do you arrive at the "priced correctly" "60% above" and "20% below"?

I do not expect to understand any explanation that you will give but I am curious to see if there is any logic to the figures that you posted.

What has the plan actuary provided as the COBRA rates for each plan and why would the figures that you posted be different from the COBRA rates (adjusted for the admin. charge)?

[KIP KRAUS]

If these are self-insured plans with or without stop loss insurance each plan should be rated on claims experience, and expenses. Arbitrarily deciding to increase the equivalent fully-insured premium rates by an across the board percentage increase to me is unreasonable. This method to me has nothing to do with the actual separate cost of each plan On the other hand, if the employer wishes to apply an across the board increase in the amount that employees contribute to each plan that would make sense.

Your recent underwriting analysis may be correct and an adjustment to each plans equivalent full-insured rate may be prudent.

I, like GBurns am curious as to how the relative value of these plans was determined. This is a new one on me.

[Guest jgf810]

Relative value of medical benefits is the actuarial cost difference between different benefit plan options. It's another way of saying that plan A will likely incur X% more cost than plan B based on their benefit plan designs.

My cost given were developed from paid claims experience and all other plan expenses. All theses plans are self-insured with stop-loss coverage.

COBRA rates are 2% above current plan premium equivalent rates. However, Plans B and C have been determined to be actuarially over priced and under priced. Which gets to my questions: do the rates of plan A and plan B need to be changes to put the plans back inline with their true cost from any legal (compliance) stand point?

What would you recommend to correct this situation? (increasing rates 60% for plan C and lowering rates for plan B is not an option in our senior management eyes, I am recommending we look at getting these plans back inline over a three year period. I am just not sure if our H&W plan are reviewed or we are challenged by an employee who states we over charged them for COBRA, how we would come out legally).

[KIP KRAUS]

If the equivalent fully-insured rates of Plan B and C have been calculated accurately based on claims, admin. and stop loss expenses they should have been adjusted up or down at each plan renewal. At what point during the plan year was it discovered that they were rated incorrectly? How did you determine that they were rated incorrectly? What changed the underwriting projections that indicates they need adjustments?

If the original renewals were based on acceptable underwriting standards at the beginning of the year and actual experience currently differs from the original assumptions it doesn’t necessarily mean they are incorrectly rated. If, for instance you are only into the first 5 months of the plan year, you really don’t have enough information to determine that the rates could be off.

We really need to know on what basis you have determined that the rates are incorrect.