Claim Analysis: A Prescription for your Health Insurance

When’s the last time your health insurance plan had a check-up? Do you know what your loss ratio is? Are you paying more premiums than you should? If you don’t know the answer to these questions, now might be a good time to contact your broker/consultant for a claim analysis.

Why Should I Get a Claim Analysis?

A claim analysis is a great way for a school, city, or county employer to get an overall picture on how their health plan has been “running”. If your plan is doing well, it means that renewals and administrative costs have been fair. In addition, the claim analysis will provide feedback regarding the underwriting performance of your insurance carrier(s). Without a claim analysis, you could be over-paying in some areas, being charged incorrectly, have inactive claims still listed as active, etc. Consider these actual cases:

A city employer had no idea how their health insurance plan was running. They did have a local broker, but he never performed any independent analytics on their plan, instead relying on the carrier for information. After having a claim analysis done by a third party, they were surprised to learn that they paid the insurance carrier over $400,000 in the past 5 years – a sum far greater than they had anticipated. Had they not done the claim analysis, they would not have been aware.

A large school district asked their consultant for a health insurance claim analysis. They were shocked to find they were overpaying premiums by a whopping $1 million dollars! How does this happen? The insurance company was charging them based on projected claims. When our consultant looked at those claims, they included some employees that were no longer on the plan (because they were out on disability and no longer covered on the plan). The school ultimately decided to leave the carrier which saved precious funds. They decided to self-insure their health insurance plan instead.

What Does a Claim Analysis Measure?

Your insurance consultant can run a claim analysis for you and explain the results. All you need to provide to them is the last 4-5 years of renewals.

Here’s what a claim analysis will measure:

1. Compare actual claims verses projected claims
   • You can only make assumptions with what you know. If you currently have high claims, your carrier may project that your claims will also be high in the future. But what if you happen to have a rare occurrence of high claimants and the insurance company is still assuming your claims will be high in the future? Taking a look at your actual claims and seeing where you’re at vs. the carrier’s projected claims may not exactly match up. You could be paying more than you should.

2. Check for underwriting accuracy
   • The underwriting process is largely a projection of future costs based on past claims costs, market trends, administrative fees, taxes, reserve assessments, and any other associated costs from the insurance company. It is important to understand what these specific costs are. Insurance companies often use a multitude of formulas to generate these costs. Employers should verify that the formula has been applied correctly and compare past formula projections to actual costs.  
3. Verify trend factors over time
   • Trend is a carrier’s prediction of how much health care costs will increase over the next policy year. Trend also plays a role in how a carrier calculates a group’s renewal. Your broker/consultant can review the trend factor the carriers are using and compare it to projected claims. Often times the trend factors have wide variations and they can make sure that you aren’t overpaying.

4. Track administrative costs as a percentage of total claims to see if they have been competitive
   • Are your administration fees in line with your claims? Your carrier sets up administrative costs based upon your projected claims. As claims go up, your administration fee goes up. When claims go down, your administration fee mostly likely does not. You might have some room to negotiate if claims have decreased.

As a public servant, you are keenly aware of your obligation to ensure taxpayer funds are spent as effectively as possible. If your claims analysis finds that you’re overpaying, clearly you will want to rectify the situation. This could lead to savings which could be spent on other school, city or county initiatives.

When is the last time your consultant or broker did a claims analysis on your health plan? Comment below, or contact one of our NIS Consultants to complete a free claim analysis on your plan.