Written by: Aaron Polkoski
The essence of strategy is choosing what not to do. — Michael Porter
When I started working in employee benefits almost 22 years ago, I was a stop loss insurance underwriter for a managing general underwriter (MGU). My function was to price policies with a delicate balance between competitiveness and appropriateness to cover the underlying risk for the company’s insurance carrier partners. Through a combination of actuarial tables, resulting underwriting models, claims experience and my gut feel, I priced each prospective and renewal case accordingly. I quickly learned that while certain elements of a particular proposal may ultimately better suit a client’s needs, it was human nature by the broker or consultant, plan sponsor or third party administrator to ultimately focus in on the bottom line rate cost.
At that time in the late 1990’s, healthcare trend was at a significant multiple of general inflation. An “unsustainable” rate as indicated by plan sponsors, plan members, politicians and industry experts. When I moved into the consulting and brokerage side of the employee benefits industry in 2005, there was still no end in sight to the massive increases in medical and prescription healthcare cost increases. I recently moved back onto the risk side of the industry and as we embark into 2020, guess what? With advances in healthcare, new specialty medications and significantly increased government regulation and control, we are somehow still dealing with the seemingly impossible task of cost mitigation for these “unsustainable” trend increases in healthcare costs.
During all this time, beyond government intervention there have been significant advances in benefit plan design and hot-button programs aimed at bending the cost curve. Health Maintenance Organizations (HMO’s), Preferred Provider Organizations (PPO’s), Consumer Driven Health Plans (CDHP’s) and Health Savings Accounts (HSA’s), disease management programs, wellness programs, member incentives, digital health tools, concierge care, direct primary care, Accountable Care Organizations (ACO’s), reference based pricing, specialty pharmacy management and I could go on and on. The result? Yes, each of these have played and continue to play roles in incremental cost savings, but many of these have come and gone for plan sponsors with mixed results, many of which are not effectively validated through objective data (that’s an entirely different topic in and of itself).
At the end of the day, a large majority of claims are still generated by a small portion of an employer group’s population. An even smaller fraction compile the largest claims and greatest disproportion of the cost. Given this, why do plan sponsors, insurance brokers and employee benefits consultants continue to grasp for the perceived lowest-cost option at each renewal? Simply put, ‘A Bird in the Hand is Worth Two in the Bush,’ unless you develop and execute a clear strategy on how to catch those two elusive birds, then there is ultimately more value derived from using that strategy to double your quarry. The same holds true with your large claim risk management strategy. While the lowest-cost stop loss insurance rate at plan renewal may be the best short-term pricing option, there could be significant missed opportunity laying ahead.
New plan designs and programs are aimed at reducing the frequency and magnitude of large claims, but these shock claims remain the primary cost driver for health plans. Stop loss and reinsurance premiums have increased as a result to become a significant portion of fixed costs for self-funded plans, and larger portions of these individual claims have become the burden of the plan due to higher specific deductible levels needed to mitigate massive premium cost increases. All this said, pay attention to the new shiny objects that come up in health care, but don’t lose focus of a long-term strategy to keep your large claim costs managed. Demand data transparency and develop an actionable approach to managing these claims to drive lower spend and a lower stop loss insurance premium over time.
Inviktus 