Fully insured health insurance companies and HMOs are exceptional at playing Hide and Seek, with profit margins hidden in the premiums. Besides the guaranteed profit margins of the Affordable Care Act (15-20% of premiums) , its new extra charges and taxes, you have to look really hard to find out where the contingency margins are hiding in the premium calculations – especially when you consider that there is very limited transparency in the actual healthcare renewal calculations.
Ask yourself – did your employees’ good health and low healthcare utilization send a surplus to your corporate bottom line or to the insurance companies’?
So, where are the good profit margin hiding places in the fully insured premiums?
Let’s take a peek at the ones hiding inside the employer-paid healthcare premiums – For starters, try looking at these little gems:
pooling charges,
These are premiums for Stop Loss Insurance that your insurance company buys from its own reserves
Industry Loads on the risk factors
These are up charges for your type of industry, created by actuaries that work for the insurance company
medical claims trend factors,
These are made up numbers that justify the need ofr more revenue, just like any other business plan
demographic load factors,
These are up charges for your employee mix, created by actuaries that work for the insurance company
pharmacy claims trend factors
Drugs Companies adjust their pricing twice per year. They add and they subtract from these depending on how their drug list is performing to their business plan
or the capitation trend factors.
This are charges for fixed cost items like mental health, organ transplants and other bundled medical care that rarely are used but always seem to have an increase
Wait! There is more…
Of course, there are more profit margin hiding places in the retention factors, IBNR reserve,(IBNR, we call it “Incurred But Not Really”) some still use terms like
Rate stabilization reserve,
More of your money they keep to offset claims
pending claim reserve
More of your money to hedge against something that might happen
and the earned interest rate assumptions built into reserves.
That earned interest is never not enough to move the needle for your benefit
Don’t limit yourself playing Hide and Seek with your local fully insured health insurance company or HMO, because the game is rigged against you as long as there’s no financial transparency, profits can be hidden, your company’s good claims subsidize bad risks and you have no way of being rewarded for good claims.
Hiding an elephant in the room has never been easier. But I can make sure it’s not hidden in your healthcare plan.
Don’t postpone your free one-on-one session. Summer is the right season to start.
