Sample teardown
A 14.2% renewal, read line by line.
This is how I work through a renewal before recommending anything. The company, claims, and quotes below are fictional, but the numbers are realistic for a mid-size Middle Tennessee employer, and the problems are ones that show up in real renewals every year.
The group: a 150-employee manufacturer with 120 employees enrolled in a level-funded medical and prescription plan.
Step 1
The renewal as it arrived
- Current annual cost$1,512,000
- Per enrolled employee, per month$1,050
- Carrier renewal+14.2%
- Renewal annual cost$1,726,704
- Added cost to the employer$214,704
Step 2
How the carrier built the 14.2%
Every renewal is built from a few pieces. The first job is to pull them apart so each one can be checked on its own.
- Medical and prescription cost growth9.5 pts
- Claims experience adjustment3.5 pts
- Fixed costs: admin, stop-loss, network1.2 pts
- Total increase14.2%
Step 3
What I would challenge
- 01
The cost-growth assumption: −1.5 pts
The carrier assumed costs would grow 9.5% next year. The group's own two-year history and current market renewals support about 8%. That difference alone is worth more than $22,000.
- 02
A one-time claim counted in full: −2.5 pts
Most of the experience adjustment came from a single $310,000 claim tied to a one-time event. The plan's stop-loss coverage paid everything above $50,000, so counting the full claim against the group overstates its risk.
- 03
A fixed-cost increase with nothing behind it: −0.6 pts
Admin fees went up with no change in service. That's a negotiation, not a given.
- 04
What the numbers support: +9.6%
Before shopping the market at all, the renewal the group's own data supports is about 4.6 points lower than the one the carrier sent.
Step 4
Then take it to market
With a defensible number in hand, the group goes out to the carriers I'm appointed with. Every option is shown on the same basis, including what I'm paid on each. Here it's the same on all three, so it can't tilt the recommendation.
Current carrier, after negotiation
Same doctors and plan. Surplus refund share improved from 50% to 75%.
- Increase
- +8.1%
- Annual cost
- $1,634,472
- Broker commission (disclosed)
- $50,400 a year, included in the cost
Carrier B
Lowest cost. About 4% of last year's claims were with doctors outside Carrier B's network.
- Increase
- +7.4%
- Annual cost
- $1,623,888
- Broker commission (disclosed)
- $50,400 a year, included in the cost
Carrier C, fully insured
No surplus refund, but no exposure to a bad claims year.
- Increase
- +9.9%
- Annual cost
- $1,661,688
- Broker commission (disclosed)
- $50,400 a year, included in the cost
Outcome
Renewal cut from +14.2% to +8.1%
The employer stayed with its current carrier at +8.1%, saving $92,232 against the original renewal. Moving to Carrier B would have saved another $10,584, but it wasn't worth changing doctors for some employees.
That was the employer's call to make, with every number in front of them. Your renewal will be different. The method is the same.
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