When we have the opportunity to meet with a new client, it is typically because they have just received their benefit plan renewal and the rates are increasing. At that time, the expectation from the client is to ‘market’ the benefit plan to seek alternative rates elsewhere.
While many will succumb to that approach, we question what is to be gained without the exercise of analyzing the plan in detail. Better to work within the existing provider parameters and examine all aspects. More times than not, an in-depth look at the plan design, claims usage, classification of employees, and provider options gives the client the information necessary to make an informed decision. Only then should a market evaluation be performed. Otherwise, clients run the risk wasting their time, which equates to money, with no meaningful results. More times than not, we will continue to work with that client, but with the existing insurer.
Prior to considering a change to a new provider, please consider:
Are the plans being offered comparable? What are the ‘hidden’ clauses that are often overlooked when there is the sparkle of savings to be had—least cost alternative drug pricing—prescription formulary restrictions—limited disability, to name but a few. How about technology—ease of administration—claiming options.
Do lower rates mean reduced costs? Are the new rates sustainable given the past usage on the benefit plan? Over time, there is very little difference in the rates from one carrier to the other based on the same experience information. When all else is equal—number of participants—plan design options—industry, the only change is the amount of benefit usage. This shouldn’t be a surprise as insurers adhere to common actuarial tables, and have been quite efficient in reducing claims processing costs to the lowest possible levels. Based on this, switching on price alone is at best a short term win, that reduces costs below that required to support claims. The result is tough first and second renewal with the new insurer and by that time, the process of moving starts all over again.
Then there is the loss of the reserve funding. This is the money set aside (out of the premium dollar) in expectation of the client leaving. This is called “incurred but not reported” (IBNR). With each move to a new provider, the new insurer needs to build up a new reserve. This can account for 8-10% of Extended Health and Dental premium, built within your first and second renewals. Switching providers leaves money on the table—walking away from your investment—and having to pay additional money to build up a new investment. This does not make a lot of financial sense.
The cost of a change to a new carrier can be broken down into two items. The cheque written to pay the premium. The second is the internal cheque for time spent by employees (during work time) to manage the benefit plan. This can come by way of administration and by employees re-processing enrollment forms for switching to another carrier. Often there are better uses of time for all employees than the time it takes to switch insurers.
Each new change creates confusion and can erode employee trust in the employer. Much like someone deciding for you to change your bank account without asking. As with anything, communication is essential. A common negative messages from employees in the midst of changing insurers is that the company must be financially struggling, if they are changing carriers to save money. This is especially the case if the plan designs are otherwise the same and the only thing that is changing is the insurer.
Consider your time. The whole exercise can be frustrating and often prove futile. If insanity is defined as “doing the same thing over and over again expecting different results” then marketing without a proper evaluation and analysis is putting you and your staff members on this grinding wheel. Without clear objectives you could be parting with time and money better spent on improving the business goals.
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