A group benefits renewal should never be a surprise to a plan sponsor. Too often, group insurance brokers first contact a client to make the sale and then, one year later at renewal time, bring along the renewal quote — which likely reflects a double-digit rate increase.
The employer is shocked — the increase wasn’t budgeted for and is a significant hit to the bottom line. And if employees pay some of the costs, they too experience increased payroll deductions.
Instead, insurance brokers should meet with employers quarterly to do a review. This can make for a longer business relationship based on transparency and professional service.
Quarterly reviews also allow a broker to identify trends, either positive or negative, and begin to take appropriate action well in advance of renewal.
Here’s an example: In working with a full-service real estate developer with 75 employees, we discovered abnormal claiming patterns on paramedical services that had been increasing over the last several quarters.
The patterns were beyond industry trends and the company’s plan use was well above the target loss ratio — the break-even point. If the pattern persisted, it was likely headed for a large increase.
A more thorough investigation into other claims reports revealed more than 80 per cent of paid claims were coming from less than 10 per cent of insured employees — so a few were spoiling it for everyone — and since the plan was 100 per cent employer-paid, the business owner was taking a financial hit.
We reviewed claims for two benefits — paramedicals and vision care. Those are two areas that are often negative drivers in renewals. The collective premium for these benefits was about $55,000 annually.
If claims continued at the same rate, it was projected the overall renewal would be an increase of nearly 30 per cent on a base premium of $248,000 — a huge increase and one the employer was not likely to accept.
We recommended a health-care spending account (HSA) and the removal of the paramedicals and vision care from the base plan. There were several benefits to the HSA:
• It would provide cost certainty because the only way it could cost more is if the employer increased the fixed amount per employee.
• It would be a tax-efficient benefit for employees as the money in the HSA would not be reported as income or a taxable benefit in Ontario.
• The deposits paid by the employer to the HSA would still be a deductible business expense to the employer.
• It would give employees an element of control over benefits as they could spend the money as they saw fit. If, for example, they wanted $500 eyeglasses, they could have them — they would not be limited to $150 every two years. They could also claim for other things not covered by the basic plan.
• If employees wanted to charge the deductibles on the drug claims or the co-pay on the dental to the HSA, they could charge them and be reimbursed. This allowed employees to have 100 per cent payment on benefits and, from the business owner’s point of view, did not increase renewal pressure.
Senior management were encouraged to eliminate paramedicals and vision care and introduce an HSA with $500 for each employee and $2,000 for each executive.
Since the excess usage came from a few employees, they would be negatively impacted — but they were the issue in the first place. All other employees had claims well below these amounts and welcomed the flexibility of the HSA.
It took several meetings for senior management to get their heads around the idea but they warmed to it, especially when they saw the renewal increase of 29 per cent.
By implementing the HSA, the company avoided paying for the negative claims experience of the past. Even if everyone used 100 per cent of their entitlement, the annual cost would still be less than keeping a fully insured plan. (In reality, employees claim only about 70 per cent of their maximum). So the current savings were very real and the long-term savings would be even better.
Booking quarterly meetings with a benefits advisor can lead to the discovery of trends, particularly negative trends, and allow an employer to be proactive and seek out answers so the renewal isn’t a shock. The company’s bottom line will look better too.
Gary B. Gorr is a group insurance broker and partner at Benefits Your Way in Toronto. He can be reached at (416) 849-2936, firstname.lastname@example.org or, for more information, visit www.benefitsyourway.ca.