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Outlier Insurance Plan Renewals Are No Longer Outliers

April 17, 2023, by Eric Calciano

Healthcare expenditures in the United States are at an all-time high. According to the American Medical Association, health spending in the U.S. increased by 9.7% to $4.1 trillion in 2020, or $12,530 per capita. This is a significant 4.3% growth rate from the prior year.

With outlier insurance plan renewals, many companies are experiencing health insurance renewal increases of more than 20%. While the nationwide industry increase is approximately 8%, companies encountering high medical loss ratios (MRL) for two to three consecutive years are seeing significant increases of 40% to 50% and higher. Rising healthcare costs and an increasing number of large claims are often to blame.

Unfortunately, options are often limited for companies after receiving an outlier increase, as this is seen as a red flag among underwriters for other carriers. When this situation occurs, it is important to seek assistance from an experienced broker who knows how to properly handle negotiations with underwriters and can recommend viable solutions for outlier scenarios.

The Rising Cost of Insurance Plans

business managers reviewing the rising cost of their group health insurance plansEmployers in America expect health insurance plan costs per employee to increase 5.6% on average in 2023, according to a National Survey of Employer-Sponsored Health Plans published by Mercer. However, the full effect of price inflation in health plan cost increases has not yet been felt as most health plans come with multiyear contracts with healthcare providers.

Employers have been heavily affected by the rising cost of insurance plans. The latest ValuePenguin survey revealed that 74% of insured Americans are stressed about rising health insurance costs, including those making between $75,000 and $99,999 (82%), baby boomers (80%), parents with adult children (77%), and women (77%).

Hospitals Are Under Pressure as Inflation Has Led to Significant Cost Increases

The country faces ongoing challenges due to the high cost of medical care. According to the 32BJ Health Fund, hospitals receive approximately one dollar out of every three spent on healthcare, resulting in an annual average of $1.3 trillion.

Prices set by hospitals have a significant impact on healthcare spending and are considered one of the top drivers of costs in healthcare. With the cost of healthcare rising, individuals and employers are also finding it more challenging to afford health insurance. Often, increased cost sharing is passed down to employees through high-deductible health plans and higher premiums.

The cost of specialty drugs has continued to grow, totaling $301 billion in 2021, an increase of 43% since 2016. Specialty drugs represented 50% of total drug spending in 2021.

A Group Health Insurance Premium Increase of 20% or More Is Considered an “Outlier Renewal”

hospital wing with beds readyWhile variations in price are common in an industry as complex as healthcare, an outlier renewal for a group health policy is reflected by an increase of at least 20%. Hospital prices are considered just one component of the healthcare system, accounting for approximately 44% of total healthcare spending among the employer-insured population.

Today, nearly half of the total U.S. population receives medical insurance through commercial plans offered by unions and employers, or that are bought by individuals. Per-person spending on hospital services continues to increase at a rapid rate when compared to healthcare spending by federal programs, such as Medicare.

Companies With High MLR Are Seeing 40% to 50% Percent Higher Costs Due to High Outliers

The medical loss ratio refers to the share of total healthcare premiums spent on medical efforts and claims to improve the quality of care. An insurer’s MLR is determined by adding all quality improvement activities and total paid medical service claims together, and then dividing that number by the total premium revenue minus all allowable deductions.

An MLR gives clarity on how a plan is performing. An MLR over 100 could indicate that the health insurer is spending more on claims than they are receiving in premiums. Many companies with high MLRs are now seeing significant increases in cost of 40% to 50% and more. With increases in hospital prices, high-cost claims, and increased pressure from drug prices, many companies are concerned about the ongoing affordability of health plans.

Increase in Red Flags for Other Carriers’ Underwriters

The way that health insurance works is by protecting important assets from the high cost of medical care. Underwriting is a key component of health insurance and involves evaluating the risk of insuring an individual or group to determine if it is profitable for the insurance company to take a risk in providing them insurance.

Underwriters at insurance companies often work with incomplete data but still must make sure that they only insure profitable risks. Due to this limited data, they may see an outlier increase and assume that the business is a bad risk. This can result in the business being priced high or refused completely. When this happens, businesses are often limited when it comes to what health plans they can obtain in the future.

Medical care prices and other health spending continues to outpace growth in the rest of the economy. Inflationary pressures within medical networks are directly affecting healthcare providers, driven heavily by staffing shortages and cost increases in the Consumer Price Index. As hospitals and medical groups negotiate contract renewals with insurance carriers, they have demanded more significant payments to insurance companies, an expense that is being passed to businesses.

Protecting Your Company From Outliers

group of business professionals gathered and discussing insuranceWhile there is ample evidence that points to increasing hospital prices to be the leading cause of increased healthcare spending, there are many different strategies that can help to lower these costs. For example, enacting a cap on outlier prices through federal and state policymaking has been shown to be effective in lowering commercial hospital prices.

Many have also found success with pursuing oversight by the Federal Trade Commission (FTC) on anticompetitive practices of hospitals due to vertical and horizontal supply chain consolidation. Other strategies look at various benefit design options to help shift utilization towards high-value providers.

Avoiding the “Death Spiral”

While rare, the ominous “death spiral” has the potential to cause financial destruction within organizations. A death spiral describes a scenario in which health insurance premiums increase so rapidly that many healthy people choose to drop their coverage as they perceive it to be no longer worth the cost. In turn, premiums begin to rise even more, leaving a pool of less healthy people at risk.

The pattern continues as more healthy people drop their coverage as premiums gradually increase until the spiral reaches a point where the market just collapses. This ultimate collapse typically occurs when health insurance coverage becomes too expensive for anyone to afford, resulting in many insurers choosing to opt out of the market altogether. A death spiral is considered the worst-case scenario for the insurance market.

Pressure on health insurers continues to grow as many employers fight to slow the rising healthcare costs. For example, in February, Humana announced that it would be phasing out its commercial business with employer health plans over the next 18 to 24 months, and other insurers are likely to follow suit.

A Customized Health Plan Can Help Start Controlling Claims Now

With healthcare costs continuing to surpass inflation, more organizations are looking for ways to control rising costs. Although there are countless off-the-shelf health insurance options, these plans provide companies with little control over claims. Building a customized health plan has been proven to be one of the best ways to significantly reduce costs while improving employee benefits.

With traditional health plans, vendors and contracts are prepackaged by the insurance carrier, leaving little room for changes. Alternatively, a customized health plan enables organizations to competitively shop vendors, which can result in more affordable pricing and improved benefits for workers.

New City Can Help Negotiate With Underwriters and Manage Outliers

In addition to lowering costs for businesses, building custom health plans also results in a better overall experience for employees. New City Insurance helps organizations create customized health plans that are built on the major national networks, such as Cigna, Humana, Aetna, United, and the Blues. With nearly all of these plans, employees can share in reduced healthcare costs by eliminating co-pays for common health services, such as labs, complex imaging and multiple classes of prescription drugs.

New City Insurance provides organizations with a long-term solution by helping them manage cost claims more efficiently. To take control of your healthcare costs, contact the group health insurance experts at New City Insurance or call us at (888)210-2765.

Have Additional Questions?
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Filed Under: Group Health Insurance

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New City Insurance
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Carol Zhang
Carol Zhang
04:29 06 Mar 22
As a rapidly expanding national media organization, the employee benefits strategy and administration that New City has provided us during our growth has been invaluable. They have been proactive about informing us of the different benefit strategies available to us as we grow as well as managing the additional compliance laws and reporting requirements at each stage of our growth.
Claudia Villalobos
Claudia Villalobos
20:14 03 Mar 22
New City Insurance made navigating through all the health insurances super EASY. Their documents are highly informative, professional, and easy to work with. Thank you for making the process of choosing a health plan so simple. You guys are THE BEST!
Philippe Salas
Philippe Salas
17:02 22 Feb 22
I never expected to have a good time talking to an insurance salesman, but let me tell you Brendan was quite the treat. He was very helpful explaining the options and has a wonderful sense of humor. I hope to speak with him every time I call.
Jennifer Polito
Jennifer Polito
17:15 09 Feb 22
Super easy enrollment process. Fast and friendly customer service. If you are looking for an insurance company that is there for you every step of the way I highly recommend New City Insurance.
Rocky Salas
Rocky Salas
23:46 07 Jan 22
So friendly, I hope to speak to him again in all my future insurance needs.
Rocky Salas
Rocky Salas
23:38 07 Jan 22
So friendly and soft spoken. I hope to speak to him again in all my future insurance needs.
Jose Brena
Jose Brena
13:20 06 Jan 22
Eric Calciano has been extremely helpful in finding and selecting the right insurance coverage for our company. With many options out there Eric assisted us on getting a low cost provider saving more than 20% than from our competitors and providing excellent coverage for our employees.
Anastasia Beaverhousen
Anastasia Beaverhousen
17:05 28 Dec 21
Signing up for insurance was quick and easy. Felicity Sundsboe
SFCC
SFCC
22:08 29 Nov 21
Jeff Stoltey and his team provide excellent customer service. Jeff has always provided my company SFCC with straightforward options. I went to a larger insurance company only to RUN BACK to Jeff at New City Insurance. I recommend them to anyone needing insurance without hesitation.
Kevin Luby
Kevin Luby
19:13 22 Oct 21
Quick, easy & informative. We were able to secure quality insurance for our small business on a tight deadline. Thanks for the help New City.
Theresa Ruybol
Theresa Ruybol
19:30 01 Jul 21
Eric was so great with us. He was very patient and kind as we are a newer smaller organization who is growing rapidly. With that said, we had made our inquiry, he had great rapid response and mostly had to wait on me. Any request that we made and/or questions we had, he was great answering and helping us understand. Then when we were ready for all documents and to move forward, Brendan helped with getting that together and the two of them worked their magic on New City's end to notify me of what was needed, assist me in that process and confirming that all was complete and approved for the coverage. I just want to say thank you all again so much, as insurance has always been confusing to me, and you all made that process go a lot smoother.Thank you
Andrea Ordendorff
Andrea Ordendorff
21:06 07 May 21
I've been working with both Clayton and Brendan for well over a year. As the purchase of our dental practice was delayed well over 14 months they both patiently supported me and continued to make themselves available. When we were officially ready to sign up they made the whole process seamless and super easy. This team is highly knowledgeable, professional, supportive, and efficient! I can't thank them enough for everything they've done.
T W
T W
22:32 30 Aug 20
I love New City Insurance. I never had a good experience dealing with insurance brokers until I started working with Brendan. He’s awesome! He is patient with me and takes the time to answer all my questions. I’m very grateful for all his help and hard work!
Mary Jane Deyette
Mary Jane Deyette
00:57 11 May 20
Jeff Stoltey is so awesome...even thru my company had only two employees, he took the time each year to research and find the best plan for us. The only reason I am leaving New City Insurance is because we no longer have any employees. Thank you Jeff
Alma Ortiz
Alma Ortiz
22:25 23 Feb 20
Brendan was awesome! I couldn't figure out how to pick my plan and he returned my call on a weekend to help me. Outstansing service!
jessica kavanagh
jessica kavanagh
19:53 13 Feb 20
Brendan was so helpful I definitely recommend him if you’re in need of good help and getting it done promptly. Thankyou so much again.
Tricia DeYoung
Tricia DeYoung
19:49 13 Feb 20
I was very thankful I inquired about this info. with Brendan. He was very helpful so I understand the benefits available much better now. Thank you Brendan.
B Bayer
B Bayer
17:43 24 Sep 19
NCI handled almost everything from start to finish. Clayton and Brendan made the plans easy to understand and walked me through the application process. They got me my ID numbers before my cards arrived so that I could keep an appointment I had already scheduled. My last broker wouldn't have done that. 5 stars!
Jessica Lehr
Jessica Lehr
03:36 07 Jun 19
Our staff was interested in a health plan, but we didn't know how beneficial a solid employee benefits package would be for our business to expand. We'd lose prospective employees because they had more options for their medical insurance which was sometimes more valuable than more pay. The New City team was amazing and gave us as many affordable options as possible so that everyone had their needs met.
Mike McClay
Mike McClay
19:36 03 May 19
My employer uses New City as their insurance broker, and I'm always amazed when I call in for assistance by how knowledgeable and attentive their staff is with my requests. Their online benefits platform makes selecting insurance plans pretty darn easy. I would highly recommend their services.
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