Time for a health insurance bid? Talk to your broker about a self-funded plan

Jonathan Harris

The Wall Street Journal recently reported in an article titled “Health Insurance Costs Are Taking Biggest Jumps in Years” that employers and workers will be expected to pay a staggering 6.5 percent more on average in health insurance costs for renewals with 2024 effective dates. This figure is three times higher than 2020 and is the latest in a steady upward trend in year-over-year cost increases. This trend is worrisome because it is reminiscent of health insurance inflation from the early 2000s. Many employers will pay much more than 6.5 percent more in 2024. Many Jan. 1 renewals have already come in at 20 percent increases, if not higher.

The Kaiser Family Foundation (KFF) reported that the average cost of employer-sponsored health insurance in 2022 currently rests around $14,800 per employee, per year. For families, this cost is close to $22,500 — or the cost of a new vehicle in many instances. This drain on family and employer finances is already crippling, and the current cost trajectory predicts a dismal view of where things are headed.

Many employers, with help from their brokers, seek to combat these cost increases by bidding their health insurance on a regular basis — often every year. The hope is that by going out to bid, one can find a carrier that is willing to offer you a great deal for your health insurance that defies industry trends and secures long-term stability for your health insurance costs.

Unfortunately, this hope is better described as “wishful thinking.” The problem with the “going-out-to-bid strategy” is that it doesn’t work at all. The reasons for this become obvious when we take a peek behind the curtain regarding how insurance carriers handle the bidding process every year.

Problem No 1: Bad Data.

For the majority of fully insured employers (the funding chassis where employers pay a fixed premium each year in exchange for insurance coverage), their health insurance carrier controls what data they will provide to the employer as well as to the employer’s broker. This range varies from providing almost no data, to providing some aggregate data that has been stripped of essential details.

This control has serious ramifications for employers and the bidding process. If you are hoping to save money by going out to bid, the data that your broker can send to competing carriers is completely managed by your current carrier. Carriers understand that going out to bid is a threat to retaining you as their client. Consequently, they have zero incentive to provide you with actionable insights from your data.

Many employers are confused when the bidding process yields several “DTQs” (decline to quote), or with quoted rates that are much higher than the incumbent carrier’s offering. The asymmetry of information that results from your carrier’s control of your health plan data plays a large role in this outcome.

Problem No. 2: The Game Is Afoot.

Carriers have navigated the landscape of going out to bid for decades. They’ve developed sophisticated strategies to frustrate the process and make it ineffective. Some of these strategies include:

1. Every carrier that sells fully insured health insurance will add several percentage points of “pad” to each of their renewal offerings. In the event that a client’s broker takes the business out to bid, the incumbent carrier immediately has a lot of wiggle room to lower their rates. Of course, they only have to do this if a serious challenger delivers a competitive quote. By building in the pad on the front end, carriers can often match any competitive quotes that threaten their existing clients. This farce does not save employers any money because the carrier is simply removing the pad or margin that they included from the offset.

2. The release of unfavorable renewals is delayed so that employers and brokers have little to no time to conduct a thorough bidding process. Employers dislike (with good reason) jumping from carrier to carrier without thinking through the decision very carefully. By delaying the renewal, carriers give themselves every advantage in retaining the business.

3. If a renewal is likely to be perceived as “kind of bad,” a carrier may load the rates significantly to make it look “really bad.” Because the carrier controls the flow of data, this perception of a renewal being really bad can spook away the competition. Competing carriers may reason that this opportunity presents a high-risk claim profile and will be less likely to provide competitive quotes.

Problem No. 3: Not a Charity.

Savvy employers are rightfully frustrated when they receive crippling health insurance renewals from their carrier even while they read headlines that the largest health insurance carriers are experiencing record profits year-over-year. Most of the largest carriers currently trade their stock at 15 times above their 2010 stock price. To state the obvious, these carriers are not charities. They are in the business of making money and the bidding process has not slowed their progress in the slightest.

Even if a carrier is forced to “take one on the chin” due to a competitive bidding process, these perceived losses will inevitably be made up in future years. Similar to the reigning logic of a weekend in Las Vegas: “The house always wins if you play long enough.”

The key for employers is to stop playing the game. This game has been designed to make everyone else money except for the employer. Breaking away from the frustrating cycle of going out to bid is one of the most liberating things you can do as an employer.

Solution

Employers with 25-500 employees have been sold the lie for many years that going out to bid is the best they can do to control their costs. In reality, thousands of employers across the country have successfully broken away from this model by self-funding their health plan.

The health insurance industry is currently experiencing a renaissance of innovation that is making self-funding more accessible and easier than ever before. Much-needed legislation is shifting the landscape in favor of fair and transparent competition. Employers have better access to their health plan data than ever before. New vendors are bringing point solutions to market that are having dramatic impacts on health plan spending. Hundreds of brokers across the country are specializing their practice to successfully guide employers through the transition.

The results are inspiring. Not only are employers successfully stabilizing their year-over-year increases to a more reasonable 1 percent to 3 percent on average, but many employers are able to experience price decreases for the first several years as their plan undergoes a market correction. The most innovative employers are even achieving results that are reducing their healthcare costs by 50 percent relative to the market average.

Talk to your broker today about self-funding your health plan. Doing so will allow you to manage this major expense and secure a better health plan for both you the employer and your employees.

Jonathan Harris is the assistant manager and lead broker for Goldenwest Health Insurance in South Ogden.