09/07/2021

A Comprehensive Underwriting Analysis Can Lead to Better Health Plan Renewals

COVID-19 is making health plan renewals more complex

Do you understand how your organization’s health plan renewal is calculated? Employers are often confused and left with no explanation when final health plan renewal rates are 5 to 7 percent lower than the initial proposed renewal. 

Frequently, the difference between the initial renewal proposal and the final rates can be attributed to competitive threats. The insurer anticipates that the broker may threaten to market the account to other carriers if the renewal rates are too high. This broker strategy is fundamentally flawed, as the starting point of negotiations are artificially inflated, resulting in discounts that leave a significant amount of excess profit for the insurer in the rates.

A thorough review of a renewal often exposes these areas of concern in renewal pricing, such as when the insurer uses overly conservative medical trends, inconsistent credibility weighting, and inflated claims reserves to generate additional revenue. Additionally, some insurers also inflate their administrative fees by using an inconspicuous mix of Per Member Per Month (PMPM) fees and Per Employee Per Month (PEPM) fees. This can result in fees that are too high if the wrong exposure base is used. These inflations are often unbeknownst to the employer, and serve as hidden revenue streams for the insurer that can easily add thousands of dollars to the renewal if left unchecked during the renewal process.  

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