How Are Health Insurance Renewal Rates Determined?

Posted June 8, 2020 by David Feinberg in Benefits and Perks
At Justworks, we know cost is top of mind as you navigate taking care of your people during this challenging time. Let's take a closer look at what goes into determining your health insurance renewal rates each year.

The value proposition of health insurance has changed. With dueling health and economic crises top of mind for many companies this year, it’s no longer “just insurance” in the world of COVID-19.

Of course, the value of high-quality health insurance has always been measured by more than potential cost-savings on care or a specialist visit copay. The value of health insurance plays a role in creating stability and continuity, and it can have a positive impact on employees and their families physical, mental, and financial health. The sense of security in knowing you have coverage that meets your needs today and can adapt to life’s changes tomorrow—without breaking the bank—is invaluable.

The value of high-quality health insurance has always been measured by more than potential cost-savings on care or a specialist visit copay.

If the ongoing health crisis has made the value of quality coverage clearer, the ensuing economic pressure now facing all businesses highlights the importance of being a confident consumer of health insurance for your team. At Justworks, we know cost is top of mind as you navigate taking care of your people in the best way possible during this challenging time.

As we’ve outlined on our blog, our goal this year is not only to create a seamless health insurance renewals process for you—but a better and more human experience, too. We’re focused on giving you more context on control, so you have the information you need to make the best decisions for your business and on behalf of your team.

As part of that commitment, let’s take a closer look at what goes into determining your health insurance renewal rates each year.

Our Philosophy: Quality Coverage at a Fair Rate, Year Over Year

When it comes to health insurance, we aim to give you access to plans and experiences that strike a balance between quality and affordability. As a PEO, we can provide access to great plans at competitive rates. We also pair them with other health-related services and resources—so your team gets better value and outcomes from their overall benefits experience.

While affordability is important, our primary focus is providing you with quality coverage at a fair rate, year over year. Delivering on this begins with helping our insurance carriers price your health insurance as accurately as possible when you first join Justworks. When we do so successfully, your annual renewal in subsequent plan years is more likely to reflect the average across the industry. Of course, the truth of the matter is that your rates will typically increase yearly, as health insurance costs have been increasing nationally over the last decade.

Delivering on this begins with helping our insurance carriers price your health insurance as accurately as possible when you first join.

Like when you first joined Justworks, during your annual renewal we’ll be available to help you make changes to the plans you offer and your contributions—so your coverage can better meet the needs of your team and your budget.

Becoming a more confident consumer of health insurance for your business starts with understanding how insurance companies determine your rates upfront.

Accurate Rates When You Join, More Predictable Rates Later

When you first join Justworks, our goal is to set your business up for long-term success. During the initial “quoting” process, this means getting you the most accurate rate possible from the insurance companies we work with to give you access to coverage.

Why is this important? Because getting an accurate rate upfront means that there is less chance of needing to course-correct later on. This phenomenon, while rare, can manifest as a high (and unwelcome) year-over-year increase during the annual renewals process, which can result in surprising and unplanned increases in your health insurance costs.

How We Get You an Accurate Rate When You Join

All insurance companies try to estimate the likelihood that a person or group will spend a certain amount on health care each year, based on information such as age, gender, and area of residence, to name a few.

To get you an accurate rate upfront, we require that you submit information about your organization’s demographics and past health insurance offerings. This helps to give the insurance companies we work with a holistic view of your team’s needs and allows them to formulate a stable baseline for your cost of coverage.

This is why we’re purposefully diligent about having the right information (and enough information) when you first join Justworks. It ensures not only that you’re getting a fair and competitive rate, but also one that’s reflective of your team and their true health insurance needs. That being said, it’s important to note that because insurers base this initial cost on your company’s present demographics and past health insurance offerings, it is inherently imperfect. That is, it doesn’t capture exactly how your team may end up using their new coverage options once they’re on Justworks or account for headcount changes you may make thereafter.

Get the guide on health insurance renewals, including a helpful employee benefits survey.

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What Factors Impact Your Renewal Rate?

As insurance companies learn from the claims incurred by a person or group, they annually adjust rates to better reflect their understanding of each group’s situation based on hundreds of data points. It’s this and a number of other factors that end up influencing your renewal rate.

In addition to what insurers can learn from a person or group’s claims in a given plan year, they also consider a range of macroeconomic factors annually. These are typically broader trends that affect the entire health insurance industry—like changes in prescription drug costs or government-mandated benefits, such as COVID-19 testing and treatment—as well as needing to meet their own business’s performance goals.

At a high-level then, your renewal rate is reflective of both a range of macroeconomic factors and factors specific to your business (like plan utilization).

How Macroeconomic Factors Influence Rates

The underwriting process is complex and multifaceted. Insurance companies consider a number of macroeconomic factors when determining your rate for the upcoming plan year.

  • Overall industry performance: Insurers consider the overall performance of the health insurance industry at-large, as well as the performance of their business, both of which will impact plan prices for the upcoming year.
  • Geographic performance: Insurers also tend to benchmark their plan performance by geographic regions. How well their plans performed in your specific part of the country can also contribute to your plan prices for the upcoming year.
  • Government-mandated benefits: Each year, federal and state governments can mandate that health insurers provide coverage for certain healthcare treatments or prescription drugs. These requirements, while ultimately beneficial for the general public, can lead to increased costs for health insurers that may be reflected in your rates. Prior to COVID-19, another well-known example of coverage requirements changing is the ACA’s dependent coverage mandate, which required all new health insurance plans to provide coverage for dependent children until the age of 26.
  • Prescription drug and specialty treatment costs: Prescription drug costs, as well as the costs for specialty treatments for serious conditions (e.g. cancer, multiple sclerosis, or rheumatoid arthritis) have been consistently rising year-over-year.
  • Overall inflation: Health insurers, like most businesses, factor overall inflation into their pricing changes each year.

Because insurers apply these macroeconomic factors to pricing generally and in a proprietary manner, Justworks is not able to “break down” or “back into” any one customer’s renewal rate.

How Factors Specific to Your Company Influence Rates

On top of these macroeconomic adjustments, insurance companies also consider factors specific to your business when determining your rate for the upcoming plan year.

  • Plans offered: The types of plans you decide to offer will impact your rates over time. At the highest level, insurance carriers want to ensure that the amount of premium collected through each plan can sufficiently cover the claims incurred under the plan throughout the year. This is why, at Justworks, we encourage offering a variety of plans at different levels of richness and cost. Doing so can help create a more even distribution of the number of employees across plan options at enrollment.
  • Enrollment: On top of the plans you offer, the people who actually enroll in them matters too. It’s important to remember that enrollment in the plans you offer often changes throughout the year. For example, you may have hired new employees or had other employees leave your organization. If not, your same employees may have also had Qualifying Life Events during the year, resulting in added or dropped dependents, etc. Your new rate is reflective of your currently enrolled members and their dependents.
  • Predicted plan usage: Finally, how your plans are used over time, throughout the year, will factor into your new rate. This is because insurance carriers use your current plan usage to predict how your enrolled members will use coverage in the future. They then use this prediction to adjust your overall rates—again to ensure they're collecting enough premiums to cover expected claims. It’s important to note that predicted usage is based heavily on usage over time, meaning recurring claims (e.g. a predicted long-term need for non-generic prescription drugs) is more likely to have an impact on your rates than a one time, high-cost claim event (e.g. the birth of a child).

Insurers also assess company-specific data in a proprietary manner, but knowing what some of the factors are can help you understand why your rate is different from another company on Justworks.

How Justworks Helps You Navigate Renewals

Because of our role between you, the insurance companies, and delivering your rate, we try to bring a more human approach to the overall renewal process. While we do our best to ensure that your rates fluctuate as little as possible year over year, your health insurance renewal rate is ultimately determined by the insurance companies we work with.

Understanding this, we focus instead on how we can help you feel confident in your decisions and how we can leverage all the other benefits in Justworks to help keep your team feeling secure and valued for many years to come. By grounding ourselves in our customers’ long-term success, we are able to support individual companies in navigating the tough decisions that sometimes emerge during health insurance renewals in a way that reflects our values.

That’s why, leading up to renewals this year, we’ve introduced new programming to help you become a more confident consumer of health insurance. Plus, we’ve built more time into the renewals process so that you can digest the information we’ll be sharing with you and get all your questions answered. Starting in late July, for example, all customers will be able to:

  • Join (or rewatch) special renewals editions of our “Ask an Expert” webinar series, where we’ll examine the state of the health insurance industry, how to pick health insurance plans in light of COVID-19 and economic uncertainty, and see what’s new in the Justworks platform this year.
  • Access your 2020-2021 Health Insurance Renewals Guide, where you’ll learn more about the national health insurance landscape, see what factors into your rate at a high level, and get guidance on how to pick the right plans or contributions to meet your strategic priorities.
  • Book one-on-one time with your Account Manager or Customer Support, where you can ask us anything about going through the renewal process, managing open enrollment for your team, or to better understand your renewal rate.

We’ll also be there to help educate your team and provide guidance on how to be smart consumers of their health insurance, too. During open enrollment, we can provide them ideas around selecting and using their plans effectively. Your employees also have free access to Health Advocate through Justworks, which can further help them navigate the healthcare system and their costs, especially around more specific individual health considerations.

Renewals can seem complex and stressful at times. But when you receive your health insurance renewal in mid-August, we’ll be there. We’ll help you to understand your new rate and support you to make changes to your plans and contributions, so that your coverage can best meet the needs of your team and your budget. All the way through the end of employee open enrollment at the beginning of October, we’ll be with you and your team every step of the way.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.