Trend for 2006 renewals

[Guest PGBenefits]

I am a "newbie" ... are there some sources I can go to which publish what health insurance trend has been for 2005? Our firm just got our 1/1 health insurance renewal. My carrier had trend of 12.5% and I'd just like to see how that compares to the industry average. I tried mercer.com and couldn't find anything, and on milliman.com they only have 2004 trend. Where can I look to see what insurance carriers are averaging for 2005? If anyone could give me some advice I'd sure appreciate it.

[oriecat]

I'd be interested to hear this too. We just got one of our Nov 1 renewals back and it came out at 28%. I know we had bad experience, but I would be curious to know how much of it might be trend. (We didn't get the full info yet.)

[Larry M]

Be wary of focusing upon the term "trend factor" when negotiating your renewal rates with the carrier. Instead, you should determine whether, in your circumstances, the requested rate is reasonable.

"Trend" is defined distinctly by each carrier in its renewal actions and takes into account a variety of items, including:

inflation, (anticipated, reported or negotiated) changes in provider fees. estimates of changes in prescription costs, changes in mandated benefits, aging of group (either with respect to the length of time insured or to the ages of the individuals insured), estimated changes in medical care management

These factors, and any other aspects the underwriter feels are appropriate (such as whether there is a surge of unemployment in the geographic area), will be used to determine the individual group's (or class of groups') "trend factor".

Most studies published by the larger firms (Mercer, Segal, Milliman, Buck, etc) are a compilation of the rate increases reported to them by larger companies which have received renewal actions - and those may not be reported and compiled until a few months after they have happened. Some of the studies differentiate between overall increases and the trend factor portion of the increase.

The renewal action of a carrier may also place their insured groups in pooled classifications, with each pool's renewal rates determined by a combination of X% of expected pool experience and 100-x% of expected specific insured group's experience.

As a result, an individual group's renewal rate may be much higher or lower than the average trend factor used by that group's carrier or by the average of many carriers.

Remember, the goal of every carrier is to charge a premium which will cover the claims it expects your group to incur, the cost of administrating the benefits (including marketing) and a margin for risk and profit.

As such, each carrier's actuarial staff will compare the previous years' estimates with the actual results; determine whether there were any flaews in the methods used to determine the estimates and then revise those methods to try to make the current year's estimates closer to the truth.

[...and then, sometimes, competition creates a need to ignore the principles and keep the case at all costs!!]

[Don Levit]

Larry:

When you speak of 5x specific group experience, and 100x pool experience, are you suggesting that this particular insurer gives substantial weight to the group's experience, compared with that of the entire pool?

Is this relatively standard, to give such a small percentage of the increase depending on the entire pool's experience?

Also, is this blending of the 2 experiences an insurance company's decision, or are they regulated by the states?

I am under the impression that in many states, there is a multiple, like the highest group cannot be charged more than 4 times the premium of the lowest group.

Don Levit

[Don Levit]

Larry:

Excuse me. I meant 5x pool and 100x specific group. The specific group's experience seems to have 20 times the effect of the entire pool's experience.

Don Levit

[Larry M]

Don,

Oops, myself!!

the phrase should have read "x%", not "x5". [Now corrected.]

Each insurer uses its own set of credibility factors. Some states require the filing of rates bases, but, to the best of my knowledge, do not mandate the factors.

Yes, in many states, for smaller groups (defined specifically by state), there are banding requirements and limits on the variance of premium rates among the groups within a specific band.

And some carriers have 100% community rating for smaller groups.

[Guest llerner]

did a quick internet search for you.

09/20/2005

Health Costs to Grow More Slowly in '06 (If Benefits Are Trimmed)

from BLR

A consultant's survey of 1,883 employers shows their projected healthcare costs "moving in the right direction" for 2006--as long as they continue to cut benefits and take other steps to manage costs.

Mercer Human Resource Consulting said it found that if employers simply renewed their current medical plans, making no changes, their average cost increase would be nearly 10 percent, which is about three times the rate of general inflation. "For many employers," Mercer remarked, "an increase of that size just isn't manageable."

So when asked what their actual cost increase for 2006 will be, after making changes in their plans, employers predicted an average increase of 6.4 percent.

For many, plan changes will mean shifiting more costs to employees, Mercer said.

"We used to think of cost-shifting as something you could do only every so often. But we're seeing a new willingness on the part of employers--born of desperation--to shift cost in successive years to achieve acceptable cost increases," said Blaine Bos, Mercer's Minneapolis office leader for health and group benefits. "At the same time, we're helping many employers with longer-term initiatives such as health management and consumerism, with encouraging results."

Last year, according to Mercer's National Survey of Employer-Sponsored Health Plans 2004 , costs rose 7.5 percent for all employers. But large employers (500 or more employees) experienced a much sharper increase (9.0 percent) than smaller employers (5.5 percent). Small employers are much more likely to use insured, rather than self-funded, health plans, and an effect called the underwriting cycle brought lower prices in the insured health plan market, Mercer said.

In 2006 small employers will again fare better than large ones, although the difference will not be as marked as in 2004, according to Mercer. Large employers predict an average final increase of 6.8 percent for 2006, compared to 5.8 percent among small employers.

When asked about the types of changes they would make to reduce their cost increase for 2006, nearly two-thirds of the large employers surveyed (62 percent) said they would shift cost to employees. Cost-shifting tactics include increasing the percentage of premium paid by the employee (39 percent of large employers), or raising deductibles, copayments, coinsurance, or out-of-pocket maximums (32 percent). An additional 17 percent said they will increase cost-sharing some other way.

With cost rising more slowly for small employers, a smaller percentage of them (35 percent) said they would shift cost to employees in 2006. "Small employers also have less flexibility to tinker with plan design," Bos said. "They're most likely to shop around for a cheaper plan."

[mroberts]

Why trim benefits across the board when it's fairly easy to make data driven decisions as long as you have the right consultants working for you? Employers should be very cognizant of what their peers are doing (benchmarking) before making any rash decisions. If you don't get to the root of the problem (wellness, disease management, over utilization on only parts of your program) you're just going to be back in the same situation next year.

[Don Levit]

I agree with you. It is very easy to reduce premiums by shifting costs.

The problem comes in once the higher deductible levels are reached, say between $2,000-$5,000. At that point, the premium reduction will not be as great for these cost-shifting tactics.

To be a good gardener, you must not only love food. You have to hate weeds!

Don Levit

[Larry M]

Don,

Weeds are flowers growing in the wrong places.