We all like deals or discounts – whether it is for products/services essential for daily business operations or non-essential items such as the newest iPhone. That being said, when it comes to your group benefits plan, deep discounts may be a trap. As outlined in our article about commitment periods – you’re locking in with an insurance company for at least one renewal. If your group’s usage is much higher than estimated by the insurance company, you could see massive rate increases on your first renewal and not be able to move insurance companies for 6-12 months. Which means you’re stuck paying the elevated renewal rates for 6-12 months.
How does this happen? How do you end up stuck paying higher rates for 6-12 months?
Insurance company estimate your rates based on your group’s demographics (age, gender, occupation, etc.). Using demographics, they estimate the claims that will be made by your group. This is fine, but if your group’s claims are well above the estimated claims – your renewal rate increase will be significant. Depending on your group benefits’ plan design it may be very easy to make claims above the estimates.
Let’s take a look at the math of a very common example – a plan that covers basic dental for $1,500 per person. A recent market quote estimated the cost per month per family is $80.
Assume a family in a group plan has 4 people (2 adults and 2 children) – their max. basic dental spend is $1,500 (per person) x 4 people = $6,000
Their annual pay into the plan is $80 (per family per month) x 12 months = $960
The group in this example will likely receive a hefty renewal increase that they will be required to pay for at least 6-12 months. Depending on the size of the group, the family dental rate can easily increase from $80 to $160+.
If you base your search for group benefits solely on lowest cost for the most coverage and fail to consider; the loss ratio, plan design commitment period and plan objectives – you’re increasing the likelihood of getting stuck paying high renewal rates. We are not suggesting you overpay for benefits, however, there is a balance between plan design and rates.
You can leave it to chance or you can take a proactive approach to reduce the likelihood of high renewal rates. With over 30 years of specializing in group benefits – Northern Financial can help you build a group benefits plan that balances coverage and rates for a long-term group benefits solution.