Gi Ch. 22 Underwriting Large Groups

Front 1

NEW BUSINESS UNDERWRITING
Characteristics of the Group to consider during underwriting and pricing:
See “General–Rating Factors” for a consolidation of this list with similar lists.

Back 1

 (A) ge and (S) ex
 Best indicators of morbidity.
 (H) ealth
 Only underwritten on high LI policies.
 (F) amily Size
 (I) ndustry
 Important for DI.
 (L) ocation
 Costs vary between rural/urban areas.
 (E) Environment; Smoking


 (O) ffsets
 Workers’ Comp, Medicare, and Social Security lower the insurer’s costs.

 (A) ntiselection controls
 Minimum participation requirement

 (F) eatures of the product
See “Designing The Plan”, below


 (F) inancial Viability and Carrier Persistence
 If group switches carriers, insurer will not recoup acquisition cost.

 (E) ase of administration
 Homogeneous = best. Multiple types of ees and customized plans = hardest.
 Best if employer has accurate enrollment and termination data.

 (Z) siZe of group
 Larger  better economy of scale.


 (P) Prior Experience
See “Evaluating The Experience”, below

 (O) verstaffed companies / Companies with high Turnover
Problems:
 Increased admin costs.
 Portability regulations.
 Anticipation of layoffs causes a flurry of claims.

 (T) ype of Group
See “Special Risks (Special Types Of Groups)”, below.

Front 2

Designing a Large Group Insurance Plan
The following safeguards help control antiselection and plan costs:
Life Insurance

Back 2

Main risks:  Volatile experience;
 Antiselection.
Recommendations:
 Min. participation requirement
 Require EOI for high amounts
 Reductions in face value for older employees
 Open enrollment period only.

Front 3

Disability Insurance

Back 3

Main risks:  Volatile, long-period claims
 Claims are subjective; can be falsified
Recommendations:
 Elimination periods
 Don’t reimburse 100% of salary
 Offset vs. Workers Comp or Soc Sec.
 Encourage limited-duty return to work, rehabilitation, etc.
 Don’t insure high-turnover groups.

Front 4

Health Insurance

Back 4

Health Insurance
Recommendations for Traditional HI
 Include deductibles and coinsurance. Limit covered services.

Recommendations for Managed Care HI
 Give ees financial incentives to:
 Use preventive care
 Use in-network doctors
 Require pre-authorizations

Front 5

Dental and Vision Plans

Back 5

Main risk:  Elective  Vulnerable to antiselection.
Recommendations:
 Min. participation requirement
 Cover 100% of preventive care only.
 Package the dental/vision plan with the health plan

Front 6

Evaluating the Group’s Prior Experience

Back 6

Data comes from the employer and from the prior insurer.
Considerations in Using a Group’s Past Claims to Project Future Claim Costs:
 Are the past claims credible?
 Is the data accurate and complete?
 How must I adjust the data to be on the same scale as our proposed plan?

Credibility Issues
 Smaller groups  less credible.
 Low-frequency, high-severity coverages  less credible. (LI and DI least credible; HI most credible)

Ways to Cope with Volatile, Non-credible Data:
 Use manual rating
 Look at several years of data
 Pool large claims

Data Accuracy Issues
Look at the prior insurer’s public financial statements.
 Did its IBNR reserves match the runout?
 Were premiums consistent with the demographics?
 Were its claim patterns real, or were they just due to administrative difficulty?

Data Adjustments
Data from the previous experience must be adjusted for:
 Trend
 Business cycles
 One-time anomalies (remove)
 Increased antiselection (e.g. if you are adding more plan options)
 Managed Care Plan Differences between your HMO and the previous one:
 Location of doctors
 Network size
 In-network usage % (for PPO/POS)
 Provider contract differences (type of contract; level of discount)
 Difficult to find out about prior carrier’s contracts.

 Services falling under different contracts
 Degree of utilization management


See example in Detailed Chapter Notes

Front 7

RESPONDING TO A REQUEST FOR PROPOSAL
Contents of a Typical Employer’s RFP

Back 7

 Claim experience reports (utilization; cost)
 Questionnaires for the insurer:
 Its utilization figures
 Its cost management ability
 Its financial performance
 Specifications for the desired plan
 Carve-out options desired
 Funding method desired (full insurance, stop-loss, or ASO)
 Risk-sharing arrangements; performance guarantees (for ASO contracts)
Performance guarantees can be based on:
 claim speed / accuracy
 employee satisfaction
 quality of care

Front 8

A Good Response to an RFP

Back 8

Goal: Create a product that is financially sound given the group, plan design, and prior claims, yet attractive to the employer.

The insurer’s offer should include:
 Price
 Underwriting controls
 Assumptions:
 Level of employer contributions
 Demographics
 Ee participation %
 Right to Cancel the offer if assumptions are not met
 Performance Guarantees
 Breakdown of expense charges
 Suggested alternate plans

Front 9

Difficulties in Responding to a Large Group RFP

Back 9

Large groups have:
 Unique populations
 Customized plan needs
 Special funding methods
Judgment is needed in pricing.

Front 10

RENEWAL UNDERWRITING
Evaluate the Year’s Experience, with respect to:

Back 10

 Enrollment changes
 Ee participation levels
 Antiselection level
 Catastrophic claims (if any)
 IBNR reserve
 Claim runout pattern

 This analysis should be split by age, sex, location, etc.

Front 11

Difficulties

Back 11

 Need to quote next year’s rate before this year is complete.
As a result:
 Claims not mature
 IBNR not confident
 Can’t tell whether large claims are “typical”

Front 12

Develop Renewal Recommendations

Back 12

 Quote new premium rates.
 If unattractive, then:
 Offer a new funding method (e.g. retrospective premium)
 Propose design changes, e.g.
 Cost-sharing
 Utilization review
 Reducing retiree costs (via Medicare)
 Or any of the other antiselection and cost controls from “(F)eatures of the product”, above.
This would make a good exam question.

Front 13

Proactively Develop Plan Revisions


Do Renewal Monitoring

Back 13

 Track emerging experience throughout the year.
Reasons why:
 For financial reporting
 For internal control
 For cash flow planning (e.g. eoy settlements)
 To identify trends and take corrective action
 To keep employer informed

Front 14

SPECIAL RISKS (SPECIAL TYPES OF GROUPS)

Back 14

 Association Programs
Risks to Underwriter: Low member participation  high antiselection

 MET’s (Multiple Employer Trusts)
MEWA’s have history of insolvency.

 Taft-Hartley Plans
Total income into trust must equal total admin cost and benefit cost for all the ees.

 Purchasing Alliances
Several employers using a common RFP and a common plan design.
 Reasons: (a) better bargaining power; (b) Get lower prices by offering economies of scale.

Risks to Underwriter:
 Strong negotiating power
 May demand the same premium for all ers
 May form a high percentage of the insurer’s market share.

Front 15

Plan Design for These Special Types of Groups

Back 15

The insurer should require (similar to “Designing The Plan”, above)
 High er contribution
 High ee participation
 EOI for large LI amounts
 Preexisting condition exclusions




Done.