It’s always interesting to me how non-traditional types of health plans are assembled from those offered by the insurance company. I’m not talking about Bundled vs. Unbundled, but rather a unique Multiple Employer Trust. While initially attractive, an employer doesn’t know that the Trust can actually put shackles on them.
For a number of years now, I have consulted with employers who have either explored enrolling in a Trust, or tried to get out. The marketing efforts of this particular Trust target public sector business – school districts, small municipalities, special district hospitals, etc. The size of their typical group has anywhere from 10 employee lives to several hundred. Employers have historically been attracted to this plan because it is has always been guaranteed issue and initially has reasonably competitive rates.
The Trust has three different segments with which a group will be enrolled into: special district hospitals, small group plans under 100 lives, large group plans over 100 lives, and special district hospitals. The renewals for each employer took into account a weighted blend of their own claims experience, the experience of the segment that they were in, and the overall experience of the Trust.
My first exposure to this was with a municipality who initially expressed their satisfaction with the Trust. The Finance person indicated that one of the things they liked was that it gave them budgetable increases. She said instead of getting a fluctuation of increases every year, instead they received 7% to 10% increases. Understandable. She said we also get a “premium holiday” at the end of the year whereby every December they didn’t have to pay their premium. Cool. However she wanted to see if any other options existed that would compete with the Trust.
I went out to market and since I was relatively new to this regional marketplace, I was unaware that many insurance companies had prior experiences with this Trust. Most of the responses were emails indicating that they would ‘pass on this one’, they weren’t ‘competitive’, or ‘here’s our quote but we’re uncompetitive’. It’s due to the lack of valuable information that makes an underwriter nervous.
The Trust does not release any claims information under 100 lives so an underwriter has a blind picture of their claims experience; the only information you can provide them is rate the group’s rate history. Groups over 100 lives only receive month to month experience with very little detail or large claim information.
The question I had was how can this Trust provide budgetable increases lower than trend? And how can it give groups a premium holiday? Upon doing some research it was apparent that the Trust has so much surplus that it was able to fund the difference between actual trend and the actual increase. In other words if trend was 12% and the trust gave a 7% increase (budgetable, convenient, and seemingly low to the employer) the difference was funded out of surplus. With regards to the “premium holiday” they were simply charging 12 months of premium over an 11 month period.
The Trust renewed every July 1 and guarantees the premium for 12 months. However, in order to either renew or terminate, the employer must notify the Trust as to their intent no later than 75 days in advance. So it’s difficult to get a “hard” quote in February or March for the employer to then make a decision whether to change, and serve notice by April 15. If the notice to terminate is given prior to April 15th then the Trust pays claims for a 90 day run out period. If notice of termination occurs after April 15 or during the course of the year, the employer is responsible for all the run out.
While I was able to find a program that competed favorably with the Trust, what I didn’t know at the time was how hard it would be to terminate from it.
First, it appeared to me that the Trust gave out reports were are on an incurred basis and not a paid basis. This was verified once the group had changed and claims under the new plan were considerably less. Second, it’s very difficult to obtain a “hard” quote from an insurance company with rates that will remain unchanged, without current experience, 90 to 100 days prior to the effective date. We certainly didn’t want a bait and switch, whereby the employer decides to make a change based upon the quote, only to have it increased after the notice of termination.
It’s a well-conceived plan by the Trust for client retention by hampering employers from ultimately implementing viable alternatives. And while the groups receive convenient and budgetable increases each year, the Rule Of 72 has exponentially increased premiums. Under the Rule, if a group receives a 9% each year for example, then in 8 years their premiums have doubled. By the way, the “premium holiday” went away.
While I have successfully moved a number of groups out of the Trust, one could also question the ethical construction of this program. As you can see, it places “shackles” on the employer and doesn’t give them an opportunity to explore and implement a realistic alternative in the rest of the marketplace. Receiving inflated quotes from conservative underwriters is not an indication of the actual market. And while it may be attractive at the beginning for employers to enroll in the Trust due to initial attractive rates, the ability to jump out at some point in the future can be very difficult.
You don’t know what you don’t know.