Eric Gulko Quoted on Paid Family Medical Leave (BBJ)
April 6, 2021
2021: Employee Benefits Reimagined
July 15, 2021Imagine this renewal scenario: your benefits broker presents you with an 18% medical renewal increase from your current carrier. You gasp. You lament that this is going to be a tough renewal process. You ask if there are any options, to which your broker suggests getting bids from a couple of other preferred carriers. One bid comes in at only 9% above your current premium. He cut the renewal cost in half and you jump for joy. But should you? Is 9% a fair increase?
Without assessing all the data, it’s difficult to say whether a renewal rate is fair or not. But we don’t think anyone should settle for a rate just because it appears “low” or below medical inflation (currently running at 5.7%)1. In this discussion, we’ll show how we can determine fair renewal rates, and how we achieve our average renewal rate of just 5.6% for groups of 50+ without changing plan design or method of funding, even in a year with medical catch up and inflation. .
A Better Process Leads to Better Results
Through decades of combined experience, we have seen that certain business practices deliver lower, sustainable renewals for our clients. Consider these practices when working with your benefits broker:
- Don’t focus on the percentage. Whether, 2% or 12%, numerical values are meaningless without context. Ask your broker to explain the data so you know what is driving your renewal.
- Market widely. Because of our independence, we are not beholden to any particular carriers and will work with all of them. And since carriers know they have a realistic shot at winning an account, they put their best effort into meeting our renewal criteria.
- Ignore the block. Many brokers are concerned with maintaining a block of business with a few select carriers. We’ve found that that thinking can prevent companies from achieving optimal renewal rates.
- Beware of bonuses. Carriers award broker bonuses based on retention rates, providing a disincentive for brokers to be unbiased negotiators. Bonuses don’t motivate us, in fact we donate most of them to charity. Learn about bonuses in this article.
- Think long term. We don’t advocate shopping every year unless there is a sizable gain to be had. There’s an intangible value in maintaining consistency for your employees.
Driven by Data, Not Perception
The single most important data point for a mid-sized fully-insured plan is its loss ratio. Loss ratio is calculated by taking the total claims paid by the carrier to doctors and hospitals, divided by total premium paid by the company to the carrier. If your loss ratio meets your carrier’s target, say 85%, the carrier will generally calculate your renewal rate by tying it to medical inflation.
But what if your loss ratio is only 70%? The carrier may offer you a below-inflation renewal of 5% and tell you you’re getting an exceptional rate. Our opinion? We’ll analyze the data to assess if the carrier is still earning too much profit. We conduct our own independent calculation in an effort to ensure that the rate 1) offers you the most value, and 2) is still workable for the carrier.
For groups of 100 or more employees, we continually track loss ratios to predict renewal rates many months in advance. If a loss ratio is running low, we’ll start the negotiation with the carrier early to secure the optimal renewal.
In the event of high claims, we’ll work to understand the issues and negotiate to the client’s advantage. For instance, if the birth of an employee’s premature baby had increased overall claims, we may remove that factor from the loss ratio, arguing that it is a one-time event.
We’ll factor in an organization’s hiring trends and other demographic shifts, to use young hires or retiring employees to your advantage. While it may seem obvious, many brokers don’t use this information in a negotiation. We wouldn’t begin a renewal conversation without knowing this data.
Is 0% Low Enough? Maybe.
While we have delivered 0% renewals for several clients recently, we’re cautious to accept that zero, like any other numerical value, is “good” without diving deeper. Ask yourself:
- What’s the context of 0%? Did you have a very favorable loss ratio, giving a carrier a huge profit margin? You may deserve a sub 0% renewal.
- Does the 0% renewal come with plan changes that don’t align with your goals and budget?
- Is the rate sustainable? Or did a carrier “buy your business”?
High Transparency, Lower Renewals
They say knowledge is power; it’s also a powerful motivator. Where it serves our clients’ interests, we share pertinent renewal data with all carriers to help them calculate the most favorable rates. Carriers know that we are independent, giving them an equal chance of winning based on what they can deliver.
Our process also benefits companies pursuing no-bid renewals, where carriers promise to offer a lower rate if the client does not shop the renewal on the open market. Since we have analyzed the data, we know what the optimal renewal should be and can confidently advise clients knowing we’re not leaving money on the table.
A Good Renewal is More than a Number
It’s possible to both negotiate with carriers aggressively and treat them fairly. Our data-driven approach means we know where a renewal should land and will push for that number. While our focus is on long-term client relationships, we carefully weigh renewals that are unsustainable for carriers as they will generally raise rates later to compensate for the “teaser rate.”
Lastly, consider that if a lower renewal means a reduction in providers or coverage, you’re not getting comparable value for your healthcare dollars.
Case Study 1
How We Did It
While the renewal of +2.1% is far below medical inflation, we pushed back on it, citing that the group’s current loss ratio was running lower than target. We told our client that the carrier was making too much profit.
We solicited several other carriers, sharing the group’s historically low loss ratio. Our delivered solution offered rates 16% below current, with matching plan designs and provider network.
Case Study 2
How We Did It
While the perception of a 0% renewal could have made our client ecstatic, we knew we still had to look at the data. It showed the plan’s loss ratio was running lower than target.
We went into early discussions expecting a low renewal. When the carrier presented the 0% increase, we negotiated further, agreeing to a no-bid renewal. Whereas many brokers might have been satisfied with 0%, we knew our efforts would yield a lower renewal for our clients.
Case Study 3
How We Did It
During our marketing, we received two very aggressive proposals that came in below current rates. Once we shared this competitive data with the incumbent, they reduced the renewal to +1.8%.
Knowing that the trailing 12-month loss ratio was above target, we recommended our client stick with the incumbent at +1.8%. Why? We predicted that either of the competing carriers would likely raise premiums the following year to account for the higher-than-target loss ratio. The client agreed to renew with the incumbent.
Achieving Optimal, Sustainable Renewals
Some in the industry say that large brokerages bring clients lower renewals than smaller brokers, or that working with only a handful of carriers builds relationships that allow for preferential treatment. As a small, independent company that works with dozens of carriers we have historical data that proves we consistently bring clients renewal rates under medical inflation.
Lastly, don’t accept what your carrier or broker says is a good rate (even if it’s 0%!), without evidence to back it up.
What’s a fair renewal for your business?
Talk to us today to see how we can help get you a fair renewal rate.
Call 978-213-8481 or send us a message.