4.5 min read
Pierre Guilfoile, NIS' Director of Health Plan Analytics, gives his take on the renewal and market expectations for the insured and self-insured market for 2020 and 2021.
As a result of recent circumstances, group health insurance renewals may be impacted in a variety of ways. Insurance companies have experienced a drastic decline in claim and expense activity. Insurers may be in a position where premium rebates are offered in an effort to comply with loss ratio requirements.
However, for insurance renewals for 2020 and 2021, groups should be prepared for carriers to exclude low claim activity months from renewal experience. Typically, a health insurance carrier will develop a renewal position based on the previous twelve months of group claim experience. Carriers will attempt to exclude from past experience, at least in part, the months of March through May. By excluding months with less claim activity, a group’s renewal may be higher than it would be in an ordinary renewal year.
A compounding circumstance with excluding recent months from a renewal workup is the trend applied within the renewal formula. Carriers apply a market trend with any renewal. Trend is an accounting for generalized increase in medical costs from one year to the next – often referred to as medical inflation. By excluding months of low experience, carriers will artificially increase the claims experience and increase the amount of trend applied when calculating renewals.
Groups should closely monitor the months of experience used to develop the renewal and also evaluate the impact on trend within the formula. A group should request that renewal positions developed by the carrier include the most up-to-date claims experience and consequently the lowest applied trend as possible.
Medical claims expenses for most groups, but not all groups, will experience a considerable decline for the months of March, April, and May. The decline in costs will not impact pharmacy costs. Insurers will be reticent to provide a value for the decline in claims expenses through the renewal process. The insures will counter the decline in the expenses by using renewal data that will not utilize all the affected months or using only one or two of the months, i.e. renewal period of April of 2019 through March of 2020.
Insurers will also increase incurred but not reported factors and effective trend. Increasing these two processes of the renewal are difficult to identify and tricky to counter. Providers negotiating contracts with carriers will almost certainly negotiate increases in reimbursements to counter their own lost revenue from non-essential services slowing down.
Counter intuitive to the renewal situation, carriers may be in a position where the ratio of revenue to claims may fall below 85%. In the event of a carrier exceeding the loss ratio requirement, carriers will either be aggressive in the prospect market (yet to be seen) or carriers will have to provide a premium reimbursement of some nature to their clients.
Large insurance carriers will utilize this disruption in care delivery to slowly implement cost and care strategies based on the carrier’s data analysis, i.e. Optum may deploy a program vastly different than Anthem. “Care enablement” will become the trend in the insured market.
Self-insured groups will take the opportunity to utilize the decline in medical claims expenses to offset trend increases affecting the plan.
Stop-loss carriers will experience an increase in overall trend with high cases. The increase in stop-loss premium expenses will largely be accepted due to the downturn in claims expenses. Prospective stop-loss carriers will attempt to eliminate any risks associated with COVID-19 which may cause reduced competition in a bid market.
In an effort to reduce costs, self-insured groups will take on more risk and increase their stop-loss deductibles. Self-insured groups will also evaluate network and program solutions to mitigate future claims expenses.
Self-insured employers (more so than insured groups) will continue to be in a position to adopt and embrace new cost and care management programs. A market disruption has not occurred to this level in a generation. Successful disruption strategies that may be implemented are coverage requirements for telehealth and/or engaging in programs prior to receiving coverage for care (care enablement). Technology now has been forced into most people’s daily life, to not capitalize on this occasion to ingrain some of that technology into the health plan would be a tremendous lost opportunity. Buy, share, or build will become the issue facing self-insured groups.
Smaller employers will have more access to level funding. When loss ratios become more manageable, level funding options tend to expand. As trends and costs grow level funded options tend to retract. We should see an expansion for the upcoming renewal cycles.
For more information, contact your Employee Benefits Consultant.
This blog is intended to be a compilation of information and resources pulled from federal, state, and local agencies. This is not intended to be legal advice. For up to the minute information and guidance on COVID-19, please follow the guidelines of the Centers for Disease Control and Prevention (CDC) and your local health organizations.