In the last article, I indicated that the first step in planning for your upcoming renewal was to understand your loss ratio for your medical and pharmacy claims. The loss ratio is an indication of where your plan sits year to date with respect to your aggregate attachment point and/or the underwriter’s expectation of paid claims. If your plan is performing at expected levels or below, you may probably only expect an increase associated with trend. Obviously, if your plan is running at levels higher than expected, you can probably expect something greater.
Depending on the funding of your current plan,one of the areas I would look at is unbundling your plan, if you’re not already. Generally speaking, insurance company’s fully insured plans, as well as their bundled self-funded counterparts, are typically higher in costs than on that is unbundled. See previous articles of Bundled vs. Unbundled Part 1 and Part 2.
The benefit of an unbundled plan is that you can investigate stand-alone programs with Best In Class vendors that may be able to provide the same service or product at a better price, or as a better product or service.
For instance, stop loss coverage when provided by an insurance company may have higher premiums and or higher aggregate factors than their competitive counterparts. You don’t necessarily have the opportunity to shop the marketplace with other reinsurance companies and the ability to negotiate with those companies for the most competitive product and rate. When you’re in a bundle program, you typically have to take that particular insurance company’s reinsurance program (there may be exceptions depending upon the insurance company).
Another area of savings may be in the cost of administration for the plan. Insurance companies typically charge a higher fee on a per employee per month basis for their administration than their administrative counterparts – Third Party Administrators (TPA). TPAs can be leaner and meaner and don’t have the overhead that the major insurance companies have. They can also provide various customized programs with additional outside vendors that you may want to offer to employees.
As pointed out in the articles above, it’s very important to deal with only Best In Class unbundled providers. Like all businesses, there are companies that provide programs and services that may be better than others.
It’s fairly simple to compare the minimum and maximum cost of an unbundled self-funded plan to that of a bundled self-funded plan as well as a fully insured plan. Once you make that comparison, you can then evaluate and determine whether or not it is a compelling financial reason to investigate further.
For fully insured plans, simply calculate your annual premium based upon a static enrollment of covered employee lives and compare that against the minimum and maximum cost of an unbundled self-funded plan. If the maximum cost of the unbundled plan is less than fully insured annual premiums, you probably have a program that you should investigate further and consider.
Note: if your plan is currently fully insured, it’s very important that you evaluate the proper types of stop loss contracts so that you aren’t comparing apples and oranges. Too often I’ve seen proposals from brokers that only, and inappropriately illustrate “immature” contracts in the first year, without explaining what happens in subsequent years, so as to be more competitive and garner a new client.
Unbundling a plan definitely has its advantages if done properly.