More often than not, insurers are solely blamed for the annual increase in Group Insurance premiums! However, both the plan sponsor and plan participants have the power to act on several fronts and make a significant contribution to cost control. Here are a few specific examples of actions you can quickly implement in your company that will reflect responsible usage.
Overview of the Fundamental Principles of Group Insurance Pricing
Insurers use two general concepts to determine the premiums required when renewing a Group Insurance policy annually:
First, insurers believe that the past is a reliable indicator of the future. If a plan is used with a certain frequency by participants (claims for expensive medications, varying levels of use of mental health services, etc.), that usage is expected to remain consistent from year to year.
Additionally, as a general rule, the insurer’s role is to ensure that risk is shared among the participants in a single plan, not among all the plans in its portfolio. In short, the insurer must collect enough premiums to cover claims from participants in a given plan while maintaining a margin sufficient to cover its expenses and generate a profit, thereby controlling costs.
Range of Coverage: From Budgeted Expenses to Major Risks
What are the main benefits of a Group Insurance Plan? Typically, the first answer is: to provide protection against major risks—that is, those that are difficult to predict and against which it would be hard for a participant to adequately protect themselves on their own.
This concept is often overlooked in Group Insurance, since medical care and supplies often dominate the discussion. However, if we draw a parallel with other types of insurance—such as Home Insurance—the overall objective would be to pay our annual premiums while hoping we’ll never have to file a claim for a major incident like a fire or water damage.
Long-term Disability Insurance stands at the top of the list of major risks in Group Insurance. Although it is often perceived as less attractive coverage, it is essential for protecting participants from the risk of being left without adequate income until they turn 65.
By contrast, coverage such as reimbursement for eyeglasses or dental exams is often requested by participants, even though these expenses are generally easier to factor into an annual budget.
Understanding Your Insurance Plan: A Necessary Step in Reducing Dissatisfaction
All too often, participants are surprised to learn that their plan does not cover a particular item or medical service after they have incurred expenses they wish to have reimbursed. It is important to provide clear information to give them a comprehensive understanding of the coverage available to them under a Group Insurance Plan that emphasizes responsible use.
This is especially true in the case of a modular plan, where participants are able to choose the level of coverage for certain benefits. Is the care I expect to receive soon covered under all modules? If I don’t think I’ll need to see a dentist in the next few years, should I choose a module that doesn’t cover dental care? These are examples of questions that anyone enrolled in a modular Group Insurance plan should ask themselves before making a choice.
Habits to Change: Educating Participants to Shift Their Perception of Group Insurance
A common instinct for many participants in a Group Insurance plan is to assume that if a benefit is offered, they might as well take advantage of it. Whether there’s a hundred dollars left over this year for massage therapy coverage or funds are available for purchasing eyeglasses, they figure they might as well use them—even if they don’t necessarily need them. After all, premiums are paid to the insurer to take advantage of these benefits.
This is true in cases where there is a genuine need or health issue to address, whether through prevention or treatment. However, as we have seen, such behaviors directly contribute to future premium increases in order to prevent a loss of cost control. It is essential that the Group Insurance plan be used responsibly when a genuine need arises.
Another simple measure to implement is to make participants in the plan aware of the actual savings generated by renewing their prescriptions for three months at the pharmacy. In fact, a significant portion of the medication bill comes from the pharmacist’s fee, which is charged each time a prescription is renewed. If prescriptions are renewed quarterly, the fee is charged only once instead of three times. Participants save money individually, but these savings also benefit the plan, since total claims are lower.
A wide range of cost-control strategies does not necessarily affect the benefits of a plan. However, being well-informed about our choices and coverage remains the key!
Contact Lussier’s specialists in Group Insurance and Employee Benefits for any questions or concerns you may have in these areas. They will provide you with the information you need and answer your questions.
Olivier Lafontaine-Grenier, B.Sc.Act.,
Senior Actuarial Analyst - Group Insurance Plans
