Unless you are an actuary it is difficult to understand why we are seeing renewal increases on HSA-qualified small group health plans running at a similar clip as renewal increases for PPO co-pay plans. When HSAs were first rolled out, one of the prime selling features from many carriers was that the decreased utilization would drive lower renewal increases.
However, there are several forces working against having lower renewals on a high-deductible health plan block than what is being given on the PPO co-pay block. First, most carriers do not segment their HDHP plans from their co-pay plans when administering their annual trend. This means that in almost every state HDHP plans will have to take at least the carrier's trend increase at renewal, which generally runs at 10 percent to 14 percent.
The second factor impacting HDHP renewals is deductible leveraging. Deductible leveraging occurs when a group's deductible remains the same over the course of several years while medical costs rise. For example, take a plan with a $2,000 single deductible that was written in 2007. If an insured had a covered $2,500 claim in 2007 the carrier would pay out $500 ($2,500 – $2,000). If there is an underlying claims trend of 12 percent, that exact same claim in 2008 would cost the carrier $800 because the $2,500 claim would now cost $2,800 ($2,500 x 1.12).
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Deductible erosion has a similar impact on HDHP plans. We can use the same $2,000 deductible we used in the deductible leveraging example. Assume that a client has a $1,900 claim in 2007. The health plan does not pay out any benefits since the claim is less than the deductible. That same claim in 2008 will increase to $2,128 ($1,900 x 1.12 percent).
It is vitally important that brokers understand how deductible leveraging and erosion affect their HDHP renewals. Clients who turned to HDHP with the intention of lessening renewal increases will be disappointed when you deliver them renewals that are a similar percentage to what they would have received on a co-pay plan. While being able to illustrate the effect of trends on deductibles will not make your client happy, it will help them understand the carrier's action.
Brokers should also be quick to discuss the real dollar cost of an HDHP renewal in addition to the percentage of increase. Clients often focus on the percentage of increase and forget that a 15 percent increase on a $5,000 annual premium is much lower in terms of a dollar amount than a 15 percent increase on a $7,000 annual premium.
Renewal season is here — make time to explain these trends to your clients and be sure they understand the economics at work.
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