The traditional approach taken by most benefits consultants is to take your benefit plan out to the insurance marketplace for pricing. This, however, is a short term solution and not a sustainable practice.
This is at best, a knee-jerk response to costs that are climbing out of control and doesn’t address the real issue of getting claims in hand. It also doesn’t address the long term need to fix the problems or what the costs of making the change to a new benefits provider really are.
Inevitably, when marketing your group benefits plan, some insurer will come in with a lower price. Someone will buy your business and upon renewal jack up your rates to compensate for the first year.
All the insurers use pretty much the same actuarial tables so whoever wants to “buy” the business will do so on price. If looking over a 5-year period, all insurers’ rates will be right around the same level unless they put some cost-containment measures into play.
So if you’re chasing a rate only, you might want to negotiate with your current supplier and save the transition headaches because you will inevitably end up around the same price over time.
The other thing to consider is every time you move carriers, you forfeit your IBNR reserve and need to build up another one with the new carrier.
The other factor is the cost of making the change. Employees need to be communicated to, processes are different, and the company goes through a blip when trying to figure out how this benefit company works compared to the last one.
The time that it takes administrators within the company needs to be measured as well. Collecting enrolment forms, coordinating for education with staff and managing payroll and administrative process with a new benefit company is costly to a company’s resources.
It would be best if you compare your plan today to the new plan and are there any differences aside from the initial price—factor in any value-added benefits. Understand what cost containment strategies are in place if any.
A great litmus test is if we did nothing to this plan, at current claims rate and trend, what is a realistic expectation for a renewal rate. If an insurer won’t give you this then be very afraid come your first renewal.
The only way to create long term sustainability for a plan is to put “real” cost containment strategies in place. If they don’t have cost containment strategies, then expect to go to market in the next year or two again.
Remember that “today’s claims represent tomorrow’s premiums”, and the only long term solution to keeping premiums at bay is to manage claims. Managing claims doesn’t need to come at the expense of benefits provided.
If you have any questions or have gone through this charade enough contact The Finish Line Group and understand that “solutions begin from a place of understanding.”
Chris Coulter is the Founder and President of The Finish Line Group. He works with business owners to leverage their businesses to increase their wealth, reduce corporate and personal taxes, create viable succession strategies, enable employee retention strategies and allow them to exit their businesses on their terms.
Chris’ passion for what he does evolve from the mistakes he made in his first business; by not diversifying his risk and not utilizing a lot of the opportunities within his business to create significant wealth. Chris found out the difficult way and now educates business owners on how to avoid many of his former oversights and ultimately control where their finish line ends.