The challenge

A Taft-Hartley client with 600 subscribers has a fully insured medical plan for its members. Every year, the fund requests that Milliman review the renewal offered by the insurance carrier and negotiate with the carrier to obtain the lowest possible rates.

The solution

We start by requesting a copy of the renewal letter and underwriting workup from the insurance carrier. We analyze the work done by the carrier and identify factors and other underwriting decisions that we think are more conservative than necessary.

We then have a discussion with the carrier’s account management and underwriting teams. During this discussion, we address the underwriting criteria and assumptions that we believe could be refined based on the fund’s membership and claims experience. These areas can include, but are not limited to, trend factors, ongoing large claim assumptions, paid-to-incurred claims conversion factors, credibility/weighting factors, and carrier retention/expense factors.

For example, during a recent review, we noticed that the carrier increased its retention factor, which is applied on a percentage of claims basis. We were able to successfully lower that factor by pointing out that claims trends have been far outpacing increases in administrative costs, which made the increase in the retention factor unjustifiable.

In another instance, the carrier increased its margin factor in a year where the claims experience was favorable, producing a relatively modest rate increase. When we questioned the carrier to justify the margin increase, they were unable to do so, and agreed to lower it to its previous level.

One year, when we reviewed the underwriting, we noticed that the carrier had split out capitations from the regular claim payments. When they applied trend to the capitations, they used their regular claims trend. We were able to successfully argue that capitated payments tend to increase at a slower pace than regular claims, and the carrier adjusted their capitations trend accordingly, resulting in a lower renewal increase.

There was an occasion a few years ago where we asked the carrier for the prescription drug pricing guarantees (fees and discounts) they had in place for this client. We typically review the drug pricing for our clients every few years to ensure they are getting deals that are competitive in the marketplace. Upon review of those terms, we realized that the carrier was not providing guarantees as favorable as we had seen with other clients of similar size. We used this knowledge to get concessions on the pricing, which resulted in annual savings of approximately $200,000.

Another recent example occurred when, upon review of the monthly claims data used in the renewal, we noticed that the claims were fairly high in the first half of the year but were decreasing in the second half of the year. Since emerging experience was apparently becoming more favorable for the client, we asked the carrier to look at the two most recent months of claims (which were not available at the time the carrier did the original renewal calculation). The carrier agreed, and discovered that the additional two months were lower than the two oldest months they previously used. They substituted the two latest months for the two oldest months, and the result was a lower renewal increase for the client.

The outcome

Milliman has been very successful on an annual basis in obtaining rate relief, and thus premium savings, for this client. In 2012, we were able to reduce the renewal increase (pre-plan changes) from 19.8% to 16.3%, which resulted in annual premium savings of $316,000. In 2011, our efforts reduced the renewal increase from 16.4% to 13.2%, which saved the client $276,000. In 2010, we were successful in reducing the renewal increase from 4.8% to 1.5%, an annual savings of $282,000. Just in the past three years, Milliman’s analysis and negotiating skills have saved our client a total of $874,000.