Case Study: Actuarial Support for an Association Health Benefit Plan
Compass Health Analytics assists its client, an association health benefits plan providing health insurance for approximately 25 employers and 2,100 employees, with its annual renewal process with a health insurer. The plan operates as a purchasing cooperative that seeks to obtain health insurance at a lower cost than its employer members could on their own.
Association health plans present unique challenges to health insurers. Many such plans charge the same premium rates across all members. If the plan permits employer members to opt in or out of the plan from year to year, then an employer may drop out if it believes it can purchase more affordable health insurance on its own. When the membership in the association health plan varies from year to year, the health insurer may react by charging higher premiums. To counter this, Compass’s client association allows premiums to vary among employer members to reflect the claims experience of each. Thus the client preserves the benefits of large group procurement, while reducing the incentives for member employers to jump in and out of the pool.
Goals of the engagement
During the renewal process, Compass works with the client association to negotiate the best possible renewal terms with the health insurer. Then, Compass helps the client determine the fairest allocation of the required premium to the individual employers.
Compass reviews the client association’s own claim experience as well as other data sources to examine assumptions the health insurer uses in the renewal process and identify ones that can be effectively challenged. This comprehensive review helps the client to assess the value of different options offered by the health insurer and obtain the most favorable outcome in its renewal efforts.
Once the client and the insurer agree on the premium for the association plan as a whole, Compass works with the association to determine the optimal allocation of the premium to the member employers. This allocation is based on actuarial rating practices, and has the following objectives:
- Price stability from year to year for the employer members
- Equity among all employers so that each pays its fair share over time
- Savings for all members relative to what each could negotiate on its own, due the greater bargaining power of the large group compared to that of many smaller groups
Following this approach, employers in the association health plan are confident that the terms they can obtain through the association are more favorable than they could obtain on an individual basis, and therefore, the employers generally stay in the plan year after year. The involvement of Compass actuaries in the premium allocation process provides further reassurance to the health insurer that the association’s membership will not vary materially from year to year. The health insurer views this membership stability positively, and in turn offers a relatively lower renewal increase to the association.