Finding a better price or receiving a discount on a product or service is sure to get anyone’s attention. We all like a good deal, so when a provider offers discounted pricing on your employee group benefits plan, you’re all ears.
It turns out, typically there is a lot more to the equation then a simple discount. Take some time to do your due diligence when offered a quote that is too good to be true: it’s likely it is too good to be true!
Mechanics of a group benefits quote
When a provider or insurer is preparing a group benefits quote, they first look for red flags in claims experience and history. They may have specific criteria that immediately disqualifies a group; multiple high-cost long-term disability claims or expensive specialty drug claims are just a few examples. The insurer will only prepare a group benefits quote if it’s determined that there is a desirable level of risk in insuring the group.
In preparing a quote, there are several elements that are considered:
- Demographics – What are the ages of the workforce, and what is the distribution of females and males?
- Industry – What industry is the company in, and what historical information is available about the industry as a whole?
- Claims Experience – How many and what type of claims have been made in the past two to three years for this organization?
- Plan Design – Which elements will be included in the plan?
As with any company, insurers must charge a specific price in order to make a profit on a group. Sometimes, insurers choose to take a short-term loss on a group in order to gain new business.
It’s typically a significant amount of work for an employer to change to a new benefits provider. As a result, most employers don’t want to keep moving to different insurance providers. The insurer knows this, and sometimes gambles on the fact that if they offer a highly discounted rate for the first year, it’s likely that the employer will stay with the insurer for a few years. Often times the proposed rates are assuming that claims will be equal to or less than past claims, which is very unlikely.
The Big Picture
Offering deeply discounted rates is not sustainable for an insurer. They cannot have a loss on a plan, year over year. The result is that a deeply discounted rate is often followed up by a dramatic increase in rates at the first renewal. They have to correct pricing to make the account profitable for the insurer. This is a very hard pill for an organization to swallow, and it’s not a long term strategy.
That’s not to say that all rate discounts will be followed by a dramatic rate increase. There are circumstances where an employer is paying too much, and by moving to a new insurer they will see sustained lower rates. Some examples of legitimate reasons why an organization may find discounted rates with another provider include:
- The current provider has not completed yearly plan evaluation and adjustments, so the rates have slowly crept up;
- The current provider’s commissions may be higher than others in the industry;
- A group’s claims experience might not be provided to a benefit pool, so they’re paying more as part of the benefit pool.
- A plan’s price can be stabilized by adding cost-containment tools
The Advisor’s Role
An experienced advisor should be able to recognize if a discounted rate you are being offered is a sustainable rate, or an attempt to “buy a business.” They should examine a rate increase or a proposed rate decrease, do the math and be able to advise you on what the next renewal is likely to look like.
An advisor should also look for plan design options that can help contain plan costs in order to protect the sustainability of your plan. Products targeting prescription drug or disability costs can indeed positively affect rates, and those options should be explored.
Good Advice is Key
Have you been offered a deep discount on your employee group benefits plan? Are you looking for support to understand whether the rates you are being offered are sustainable? Review your options with one of our licensed advisors on the phone, or contact us for a comparison quote.
Whether you’re looking for extended health and dental coverage, disability coverage, or life and critical illness coverage, GroupHEALTH has affordable benefits packages that work as hard as you do.