If you were to ask an employer the status of their bottom line, most would give you an answer reflective of their specific profitability in relation to their goals and expectations. Knowing the how’s and why’s of profitability and where to make adjustments to address necessary change is essential to the success of any venture. For most employers, healthcare has become the number two realized expense after payroll, and it has become overwhelmingly difficult to understand with a similar level of operational aptitude. When employer groups attempt to renew their health coverage annually, control and knowledge over their current plan status is often taken away and decided for them by a five letter word that feels more like a four letter word………….Trend. Trend is the best friend of industry decision makers, utilized to justify annual increases regardless of actual experience, demographics, plan design and current health status.
Following a consistently conservative annual pattern, carriers construct an actuarial justification to raise rates based on previous block performance and anticipation of upcoming claims. They don’t always get it right. When I started in the business 15 years ago, the annual trend increase applied to every underwriting calculation for prescription costs was around 25% when year after year, the actual realized increases were around 8-12% in retrospect. In the most recent years, medical trend increase has been estimated at 14% or higher by numerous experts who expected higher than normal increases due to new ACA requirements when actual medical trend ended up closer to 6%. I don’t believe that 2015 will bring any changes to this industry standard approach.
The problem for many larger employers facing trend when negotiating renewals remains: How do they “Buck The Trend”, literally? Most of these groups shouldn’t merely be shown a percentage increase and told to accept it just because it’s a part of a larger calculation established by their carrier partner. Yet their choices can be seemingly limited with few apparent options and even fewer potential broker partners who are truly qualified to help them apply those options successfully.
What if there was a way for groups to create their own trend? What if it was specific to their actual claims experience, plan needs and financially accurate when compared to what the market consistently presents them in these dreaded annual renewals blamed on trend? The right consultant partner can help make this happen.
When constructed appropriately and in a manner responsive to applicable data, the right plan can create options for groups that accurately meet their needs both financially and operationally. Groups choosing to enact this kind of effective change in their health plan can realize significant savings the first year of implementation and then controlled annual increases thereafter. Many of these entities have been able to keep these yearly increases to below 5% because they took the steps needed to define their own trend. It takes work, but the potential payoff can set them up for plan success in the years to come.