Open Enrollment: What determines your group’s renewal rates?

Now is that time of year when many small business owners check their inbox to find that the group health insurance renewal has arrived from the insurance carrier.  As the owner slowly clicks on the email, she braces herself and begins to read what this year’s premium increase will be for her company.  Sound familiar?

So what is behind the rise in premiums for employer coverage and what factors determine your company’s annual renewal? Generally speaking, most health insurance companies determine your small group’s rate increase, or decrease if you’re lucky, based on four main factors:

  1. Risk Factor:  Health Insurers assigns a risk factor to every group based upon your employees medical history and prior claims experience.  The risk factor typically scales from a low of .65 to a high of 1.35 with 1 being the median.
  2. Medical Trend:  The medical trend is based upon the rising cost of healthcare that the insurer is experiencing for other small groups in your “pool” that share the same plan design as your group.
  3. Healthcare Reform:  Due to the necessary plan design changes that insurers have made to comply with reform (no cost share for preventive care, no lifetime max, etc), most insurers have built in a rate increase of around 1 or 2% based upon the expected added cost.
  4. Demographics:  The insurer weights the demographics of your group as though your company were to be written as a new group based upon your employee census and corporate location.

Now you know what the insurer evaluates when determining your company’s health plan renewal rates!

Source: Bernard Health Blog article by Matt Kleymeyer

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