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Prime Premiums for Benefits Agents?

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Is the American Recovery and Reinvestment Act lowering your renewal premiums? Though it’s certainly not intentional, this seems to be an accidental side effect of recent economic legislation.

For those of you who have been asleep since February 2009, this bill, enacted by Congress on behalf of President Obama, was designed to help spur economic growth. Whether that’s happened is highly debatable but, notably, one provision of the legislation allowed people who had been laid off to get back on their company’s group health plan at a fraction of the cost. (As most of you know, COBRA can run an enrolled employee up to 102 percent of the premium.) The ARRA allowed the same person to enroll or re-enroll at only 35 percent of the premium for up to nine months, with the employer most often paying the difference.

For employees who were enrolled in COBRA, this was a direct reduction of their premiums. For those who were laid off and had not elected continuation of their medical benefits, they now had an option to enroll through a new open enrollment. This was retroactive through September 2008. With the new subsidy, these employees were now able to enroll for less than the cost of coverage had been while they were actively employed.

Not surprisingly, due to this provision, we saw a tremendous spike in COBRA participation during open enrollment period. As an advisor, I recommended that many of my clients begin utilizing COBRA administrative services during this time.

The enrollee rush
So, in the 12-18 months following the passing of ARRA, insurance carriers saw a tremendous increase in utilization with new enrollees. COBRA participants were using the company health plans at a much higher rate than expected. Many employees had already met their deductible, or decided, like any rational person, to go ahead and get full use of the benefits before they lost coverage. For some, this meant going ahead with an elective procedure or finally getting in to see the doctor for something they had put off. Others planned a pregnancy around their remaining time on the company plan.

Since no one could have predicted this legislation (or its impact), there was not enough trend factor built into the rate model for the plans that year. As a result, at one of the most perilous times in our industry, underwriters reacted exactly as they were trained to do: they increased the rates. With the increased utilization, the natural reaction was to pass it through at renewals. This is why, two years ago, 20-35 percent renewal rate hikes were common among small group plans.

Thankfully the increased utilization was only a blip on the radar for a short window of time. Thus far in 2011, the majority of renewals in small group plans have dropped to the 10-20 percent range.

When evaluating renewals for 2011, most carriers have now lowered their manual rate adjustment. This is a reflection of how their plan actually ran in 2010 versus how their plan was expected to run. Since the plans had lower loss ratios than expected, due to this 18-month period of non-recurring claims, we are now seeing decreases at renewal. The numbers certainly vary from region to region, but we are typically seeing around a 5 percent rate decrease at renewal, thus helping to lower your renewals for 2011.

While I am certainly not pinpointing the renewal increases just on the ARRA, there is a definite and direct relationship to the provisions and renewals for 2010 and 2011. Thus, it seems the ARRA is now helping to reduce small group renewals — not by intent or design, but by inadvertent consequence.

Danny O’Connell is partner at Benefit Resource Group. He can be reached at [email protected].

For more exclusive benefits coverage, visit ASJ’s Employee Benefits Resource Center.

Past benefits stories from ASJ:

Help Employees Meet Their Challenges

Helping Clients Build New DI Benefits in the New Year

Changing the Benefits Conversation: From Products to Solutions

Of Budgets and Benefits

How to Diversify and Grow Your Employee Benefits Business


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