By Jimmy Dang
When it comes to benefits renewals, plan sponsors often take data from the previous year to help them plan and budget.
This can be a great way to help determine benefits costs. And between March and May of 2020, there was a dramatic dip in paramedical and dental claims, when Covid-19 shut down medical offices across Canada. So it’s natural that sponsors might expect rates to decrease for 2021.
However, the medical shutdown was only one part of the equation, and it’s unlikely premiums will fall in 2021 as a result. Understanding how benefits premiums are calculated can help organizations understand and plan effectively.
If your organization doesn’t budget enough for coverage and can’t find additional funds to absorb the difference, you may instead wind up cutting back on other benefits.
Here are five factors that may result in an increase in benefits renewal rates:
- Claims paid: Even though dental and paramedical offices were closed for several months, it did not mean the number of claims submitted over the entire year decreased. Many providers, such as mental health professionals, pivoted to virtual models, and other categories like pharmaceutical coverage may not have been particularly affected.
- Premiums paid: Many, if not most, insurers reduced premiums due to the spring lockdown. Depending on the benefit, some reductions were as high as 70%. As a result, your organization may have already fully benefited from any dips in claims due to the shut down.
- Health and dental trends: Insurance companies set a premium high enough to cover the cost of claims and expenses for the next year. They consider trends such as inflation, expected usage, change in demographics and the cost of new products and services. It’s likely that higher costs due to these factors outweigh cost reductions due to a decrease in utilization.
- Limited experience: Insurers may apply only limited credibility to smaller organizations given the high volatility of claims year-over-year. In conjunction with the experience from an insurer’s overall business, the factors mentioned above will help determine the remainder of the cost.
- Self-insured coverage: If your plan is self-insured, your advisor may recommend excluding the months of lockdown from 2020 data when planning for 2021. This minimizes the likelihood of putting your plan behind before you even start.
Preparing a budget is critical to future planning. There are many factors that contribute to your future premium rate, not just the number of claims. When planning for medical and dental renewals, set aside as much as you did in 2020, or even more. Reach out to your benefits consultant or advisor to confirm whether your expectations are reasonable.
HUB International’s team of brokers has extensive experience in designing the full range of employee benefit programs and can help you gather the data you need to navigate the benefits renewal process efficiently and effectively.