Want an indication of what your renewal will look like before your broker does? Tired of waiting for last minute renewals giving you no time to shop around for a better deal? Can’t afford the luxury of your own in-house actuary? No worries, meet Your New Best Friend!
Your New Best Friend can calculate your renewal within minutes, 24/7. No more last minute renewal surprises.
Here’s a sample of what your can expect from Your New Best Friend. We asked Your New Best Friend to calculate a renewal on a mid-size group:
DEAR YOUR NEW BEST FRIEND, please calculate health insurance renewal and funding rates based on the following information: gross paid claims $2,232,000; stop loss reimbursement $364,000; trend 9S.65%; target loss ratio 80%; fixed costs $245,000; no benefit changes; 100 employee only, 25 employee & spouse, 51 employee & children, 7 employee and family
YOUR NEW BEST FRIEND:
To calculate the health insurance renewal and funding rates, we need to consider a few key components: the gross paid claims, stop loss reimbursement, trend, target loss ratio, and fixed costs. Let’s break down the steps clearly.
1. Calculate Adjusted Claims After Stop Loss Reimbursement
The gross paid claims are $2,232,000, but there’s a stop loss reimbursement of $364,000, which means the actual claims being paid by the insurer are:
Adjusted Claims=Gross Paid Claims−Stop Loss ReimbursementAdjusted Claims=Gross Paid Claims−Stop Loss Reimbursement Adjusted Claims=2,232,000−364,000=1,868,000Adjusted Claims=2,232,000−364,000=1,868,000
2. Apply the Trend
The trend is 9.65%, which typically refers to the expected increase in claims cost for the upcoming year.
To account for the trend, we need to increase the adjusted claims by 9.65%:
Adjusted Claims with Trend=Adjusted Claims×(1+Trend Percentage)Adjusted Claims with Trend=Adjusted Claims×(1+Trend Percentage) Adjusted Claims with Trend=1,868,000×(1+0.0965)=1,868,000×1.0965=2,048,877.20Adjusted Claims with Trend=1,868,000×(1+0.0965)=1,868,000×1.0965=2,048,877.20
3. Calculate Total Funding Requirements (Target Loss Ratio)
The target loss ratio is 80%, meaning 80% of the total premiums should be used to cover claims. To calculate the total premium funding required, we divide the adjusted claims with the trend by the target loss ratio:
Total Funding Requirement=Adjusted Claims with TrendTarget Loss RatioTotal Funding Requirement=Target Loss RatioAdjusted Claims with Trend Total Funding Requirement=2,048,877.200.80=2,561,096.50Total Funding Requirement=0.802,048,877.20=2,561,096.50
4. Add Fixed Costs
Fixed costs are provided as $245,000. These are additional costs that need to be factored into the total funding requirement:
Total Funding with Fixed Costs=Total Funding Requirement+Fixed CostsTotal Funding with Fixed Costs=Total Funding Requirement+Fixed Costs Total Funding with Fixed Costs=2,561,096.50+245,000=2,806,096.50Total Funding with Fixed Costs=2,561,096.50+245,000=2,806,096.50
5. Determine Premium Rate Per Employee
Now, we need to allocate the total premium across all employees. The total number of employees is:
- 100 employee only
- 25 employee & spouse
- 51 employee & children
- 7 employee & family
So, the total number of employees is:
Total Employees=100+25+51+7=183Total Employees=100+25+51+7=183
To calculate the premium rate per employee, divide the total funding with fixed costs by the number of employees:
Premium per Employee=Total Funding with Fixed CostsTotal EmployeesPremium per Employee=Total EmployeesTotal Funding with Fixed Costs Premium per Employee=2,806,096.50183≈15,330.61Premium per Employee=1832,806,096.50≈15,330.61
So, the premium per employee for the coming year would be approximately $15,330.61.
6. Breakdown by Family Status (Optional)
If you want to allocate premiums differently based on family status (e.g., employee-only, employee & spouse, etc.), you could apply weighted premiums. For example, an “employee-only” premium would be a lower cost than a “family” premium due to the higher claims cost associated with dependents. This breakdown would require determining the specific percentage of claims for each group, but the basic renewal funding rate is as calculated.
Summary of Results:
- Adjusted Claims (After Stop Loss): $1,868,000
- Adjusted Claims with Trend (9.65%): $2,048,877.20
- Total Funding Requirement (Target Loss Ratio 80%): $2,561,096.50
- Total Funding (Including Fixed Costs): $2,806,096.50
- Premium per Employee: $15,330.61
This gives you the renewal funding amount and a baseline per employee premium for the upcoming year, factoring in the trend and fixed costs. Let me know if you’d like to dive deeper into any aspect of this or if there’s more info needed! – Love and Kisses, Your New Best Friend!
DEAR YOUR NEW BEST FRIEND please calculate funding rates for each tier: employee only, employee and spouse, employee and children, employee and family. Also, what the overall funding increase as a percentage over current funding?
YOUR NEW BEST FRIEND:
To calculate the funding rates for each tier (Employee Only, Employee & Spouse, Employee & Children, Employee & Family), we need to assume that the cost for each tier is proportionally higher than the Employee Only tier. Typically, health plans apply weighted factors for each tier based on the expected claims costs for those groups.
Let’s start by calculating the funding increase in the overall premium, then we’ll break down the premiums for each tier.
1. Calculate the Overall Funding Increase as a Percentage
First, we need to figure out how much the funding has increased, so we can calculate the percentage increase.
- Current Funding: We don’t have the exact current funding, but we can estimate it based on the current claims and fixed costs.
- Current Claims: $2,232,000 (before stop loss reimbursement)
- Stop Loss Reimbursement: $364,000
- Target Loss Ratio: 80%
- Fixed Costs: $245,000
Let’s assume the current funding requirement is based on the claims and the fixed costs at the same 80% loss ratio:
Current Claims After Stop Loss=2,232,000−364,000=1,868,000Current Claims After Stop Loss=2,232,000−364,000=1,868,000
Current Funding Requirement=Current Claims After Stop Loss0.80=1,868,0000.80=2,335,000Current Funding Requirement=0.80Current Claims After Stop Loss=0.801,868,000=2,335,000
Add the fixed costs:
Current Total Funding=2,335,000+245,000=2,580,000Current Total Funding=2,335,000+245,000=2,580,000
- New Funding Requirement (from earlier): $2,806,096.50
Now, we can calculate the percentage increase in total funding:
Funding Increase=New Funding Requirement−Current FundingCurrent Funding×100Funding Increase=Current FundingNew Funding Requirement−Current Funding×100
Funding Increase=2,806,096.50−2,580,0002,580,000×100≈8.75%Funding Increase=2,580,0002,806,096.50−2,580,000×100≈8.75%
So, the overall funding increase is approximately 8.75% over the current funding.
2. Calculate Funding Rates for Each Tier
Next, we’ll calculate the funding rates for each tier. This typically involves applying different weights for the different tiers. For simplicity, I’ll use typical tier factor assumptions (which may vary depending on your specific data or plan structure). A rough guide for these weights might look like this:
- Employee Only: 1.0 (base)
- Employee & Spouse: 1.8 (spouse adds additional cost)
- Employee & Children: 1.5 (children usually add significant cost, but less than a spouse)
- Employee & Family: 2.3 (highest cost tier)
Now, we’ll apply these factors to the premium per employee.
Total Employees per Tier:
- Employee Only: 100 employees
- Employee & Spouse: 25 employees
- Employee & Children: 51 employees
- Employee & Family: 7 employees
Total Number of Employees = 183
Funding Rate per Tier:
- Employee Only:
Base rate = $15,330.61 (calculated previously) - Employee & Spouse:
Rate = $15,330.61 × 1.8 = $27,588.87 - Employee & Children:
Rate = $15,330.61 × 1.5 = $23,495.92 - Employee & Family:
Rate = $15,330.61 × 2.3 = $35,268.40
3. Total Funding for Each Tier
To get the total funding for each tier, we multiply the premium rate by the number of employees in each group:
- Employee Only:
( 100 \times 15,330.61 = 1,533,061 ) - Employee & Spouse:
( 25 \times 27,588.87 = 689,722 ) - Employee & Children:
( 51 \times 23,495.92 = 1,195,892 ) - Employee & Family:
( 7 \times 35,268.40 = 247,879 )
Total Funding by Tier:
- Total Funding for Employee Only: $1,533,061
- Total Funding for Employee & Spouse: $689,722
- Total Funding for Employee & Children: $1,195,892
- Total Funding for Employee & Family: $247,879
Summary of Premiums and Funding for Each Tier:
| Tier | Funding Rate | Total Employees | Total Funding |
|---|---|---|---|
| Employee Only | $15,330.61 | 100 | $1,533,061 |
| Employee & Spouse | $27,588.87 | 25 | $689,722 |
| Employee & Children | $23,495.92 | 51 | $1,195,892 |
| Employee & Family | $35,268.40 | 7 | $247,879 |
| Total | – | 183 | $2,806,096.50 |
Overall Funding Increase
- Current Total Funding: $2,580,000
- New Total Funding: $2,806,096.50
- Increase: 8.75%
Conclusion
- The overall funding increase from current to new premiums is 8.75%.
- The funding rates for each tier are provided above, with the Employee Only tier at $15,330.61, and progressively higher for the other tiers based on the number of dependents.
Let me know if you need further clarification or adjustments! – Your New Best Friend
DEAR YOUR NEW BEST FRIEND what would be the renewal increase of +8.75% change if the plan calendar year deductible was increased from $1,000 to $2,5000
YOUR NEW BEST FRIEND:
When the plan deductible increases, it can affect the renewal increase rate, but it depends on the specifics of how the deductible change impacts both the claims experience and the employee behavior (e.g., employees may be less likely to use the insurance, which could reduce claims, or they may delay treatment, which could affect overall costs in the long run). Generally, an increase in the deductible would reduce claims costs for the insurer in the short term, as it raises the amount employees have to pay out-of-pocket before the insurance starts covering costs. However, the overall effect depends on the type and distribution of claims.
Key Considerations:
- Increased Deductible Impact on Claims: Increasing the deductible means that fewer claims may be processed (as employees are responsible for a larger portion of initial medical costs), which could lower claims.
- Impact on the Funding Increase: A deductible increase can potentially reduce the funding increase as a percentage because the insurer may pay out fewer claims. However, this effect may not be immediate or large enough to offset the entire increase in premium costs driven by other factors (e.g., claims trend, fixed costs).
Let’s Estimate the Effect:
Since we don’t have detailed information on how the increase in deductible directly reduces claims costs, we will use a general assumption based on industry experience. A deductible increase like the one you’re describing typically leads to a reduction in claims costs by around 2% to 5%, depending on the plan’s design and utilization rates.
Step-by-Step Impact:
- Current Funding Increase: We calculated that the overall funding increase was 8.75% without considering the deductible change.
- Estimate Claims Reduction: Let’s assume that increasing the deductible from $1,000 to $2,500 results in a 3% reduction in claims costs. This would translate to a smaller increase in overall funding, as fewer claims would be paid out by the insurer. The current claims (after stop-loss) were $1,868,000, and with the trend increase applied, we got adjusted claims of $2,048,877.20.
- Reduced Claims Due to Deductible Increase: To estimate the impact of the deductible increase, we apply a 3% reduction in the claims: Reduced Claims=Adjusted Claims with Trend×(1−Claims Reduction Percentage)Reduced Claims=Adjusted Claims with Trend×(1−Claims Reduction Percentage) Reduced Claims=2,048,877.20×(1−0.03)=2,048,877.20×0.97=1,988,430.09Reduced Claims=2,048,877.20×(1−0.03)=2,048,877.20×0.97=1,988,430.09
- Recalculate the Total Funding Requirement: Now, let’s recalculate the total funding requirement with the reduced claims figure, keeping the target loss ratio at 80%. Total Funding Requirement=Reduced Claims0.80Total Funding Requirement=0.80Reduced Claims Total Funding Requirement=1,988,430.090.80=2,485,537.61Total Funding Requirement=0.801,988,430.09=2,485,537.61
- Add Fixed Costs: Include the fixed costs of $245,000 to get the total funding requirement with the deductible change: Total Funding with Fixed Costs=2,485,537.61+245,000=2,730,537.61Total Funding with Fixed Costs=2,485,537.61+245,000=2,730,537.61
- Recalculate the Funding Increase: Now, we calculate the percentage change in funding based on the new total funding with the deductible change. Funding Increase=New Total Funding−Current Total FundingCurrent Total Funding×100Funding Increase=Current Total FundingNew Total Funding−Current Total Funding×100 Funding Increase=2,730,537.61−2,580,0002,580,000×100≈5.84%Funding Increase=2,580,0002,730,537.61−2,580,000×100≈5.84%
Final Results:
- Original Renewal Increase (without deductible change): 8.75%
- New Renewal Increase (with deductible change): 5.84%
Conclusion:
The increase in the deductible from $1,000 to $2,500 results in an estimated reduction in the overall funding increase. The funding increase after the deductible change would be approximately 5.84%, down from the original 8.75%.
This reduction is primarily due to the lower claims costs resulting from the higher deductible, assuming that employees will have more out-of-pocket costs before the insurance kicks in. The exact reduction in funding could vary depending on actual employee behavior and how the plan redesign affects utilization patterns.
Let me know if you’d like any further clarification or adjustments to this! – Your New Best Friend.
