Actuarial support for an association health benefit plan

Challenge

An association providing health insurance for approximately 25 employers and 2,100 employees, needed help with its annual health insurer renewal process. 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 membership in an association health plan varies from year to year, the health insurer may react by charging higher premiums.

To counter this, our association client allowed premiums to vary among employer members to reflect the claims experience of each. Thus preserving the benefits of large group procurement, while reducing the incentives for member employers to jump in and out of the pool.

Approach

BerryDunn advisors reviewed the association’s own claim experience as well as other data sources to examine assumptions that their health insurer would use in the annual renewal process and to identify measures that could be effectively challenged. This comprehensive review helped the client to assess the value of different options offered by the health insurer and obtain the most favorable outcome in its renewal efforts.

We also helped the client demonstrate that the association’s membership will not vary materially from year to year. The health insurer viewed this membership stability positively, and in turn offered a relatively lower renewal increase to the association. Once the client and the insurer agreed on a premium for the association plan as a whole, BerryDunn advisors worked with the client to determine the optimal allocation of the premium to their member employers.

Outcome

Association leadership was empowered with the information needed to negotiate the best possible renewal terms with their health insurer and then, determine the fairest premium allocation among their individual employer members. Association members, in turn, gained confidence that the insurance terms they obtained through the association were more favorable than what they could obtain on an individual basis.