Why did our renewal go up when our claims were good?

I used to sit on the carrier side of this exact situation, and I saw it constantly. A fully insured group with excellent claims gets hit with a big renewal. The advice they get is to shop more fully insured plans and pick the cheapest one. They move, and a year or two later I would see them requesting a quote again, because the new carrier hit them with another increase their loss ratio never justified.

Here's the big issue with that. Fully insured renewals are heavily skewed by a large, generally unhealthy risk pool. If you are a small group (in Texas, generally 2 to 50 employees), you are ACA community-rated, so the carrier cannot price you on your health at all. Great if your group is sicker than average. Not so great if you are a healthy group subsidizing everyone else.

Once you are a large group, your claims start to count, but only partly. The carrier blends your experience with a manual rate, and on a 75 life group the manual rate still drives a big piece of the price no matter how healthy you were. And if claims come in under what the carrier priced, the carrier keeps the difference. As a former underwriter, I can tell you that margin is built in on purpose.

What nobody explains is that you can often keep the same carrier and the same plan, change how it is funded on the back end, and get rated on a more favorable formula, with the surplus from good claims coming back to you instead of the carrier. Is the answer always that simple? Definitely not. But you would be surprised how often it is.

Questions to ask

If our claims came in under what we paid last year, who kept the difference?
How much credibility did the carrier give our own claims experience?
What would our last three years have cost under level funding or self-funding?

How do underwriters actually price our renewal?

Your renewal is a number the carrier decides, not one it simply calculates. The underwriter projects your claims, adds trend, blends in a manual rate based on credibility, applies pooling charges for large claims, then adds retention for admin, taxes, commissions, risk, and profit. Every one of those inputs has a range, which is why two carriers can look at the same data and come back 15 percent apart.

When should we start working on our health plan renewal?

Five months or more before the effective date. Requests for quotes typically go out three to four months before renewal for fully insured groups and four to five months out for self-funded and captive groups, because stop loss quotes and lasers depend on current large claim detail. Most renewals fail because they start 60 days out.

Fully insured, level funded, self-funded, or captive. Which is right for us?

It depends on who you want holding the risk. Fully insured is the simplest and least transparent. Level funding is the usual first step for a healthy group and is most common under 200 employees. Self-funding gives you all the data and keeps the surplus, in exchange for volatility. A group captive gives self-funded employers the same economics with less volatility by sharing a middle layer of risk with peers.