Why Leaping to Save on Benefits Premiums May Actually Cost You

Dec 04, 2017

It seems to happen a lot…seemingly daily, someone will say they can save a client money on their group benefits plan. My not so subtle reply is usually, “Another great deal, eh?” followed closely by a weary rhetorical, “Based on what?” I always know the answer because saving on premiums is the easiest way to get someone’s attention.

Let me quickly say and be very clear, it’s not that costs aren’t critical. Obviously, they are. Managing costs is a cornerstone of any benefits plan strategy. Nor do I mean there aren’t times when it makes sense for some clients to change insurance carriers. Poor customer service, inadequate online platform, or if there’s been a significant change in their business, then absolutely these are fair reasons. But, what drives my cynicism is not the claim that money can be saved, which may well be true. But determining whether the claim is true or not requires much more than just a simple pitch. To imply otherwise is doing a serious disservice to clients and to our industry. Deciding to switch carriers requires significant attention to a variety of factors, only one of which is the cost of premiums.

First, there’s the deceptively simple, yet key issue of time.  It takes time to examine, review and decide on available options. It takes more time to educate plan administrators about the new program and still more to communicate with and to re-enroll all the employees. Afterwards, there are often disruptions in claims payments and adjudications that accompany new policies for pharmacies and dental offices. It all takes time, and last time I checked time is still money. 

In addition to these logistical concerns there are some more complex financial impacts that can arise. For example, what initially may look like a deal offered by a competitor can turn out to be completely unsustainable because it does not support existing claims levels. The great deal can create a substantial first year deficit which leaves the client vulnerable to a possible large increase at renewal that was not accounted or in the budget.

Similarly, there is the potential for the loss of built up reserves that will need to be funded in the first year. This can also have a negative impact on first year pricing. Finally, claims often spike when there’s a new carrier as there may have been a re-set in coverage allocations and limits. Would you spend your new vision care allotment if you were handed a re-set in coverage? Most employees will give you a resounding “heck yeah!”

You may well find it is worth the effort to review all these soft factors and financial implications. And ultimately, the results may offer savings not only today but ongoing in subsequent years. Although the context wasn’t business related, something JFK once said is still relevant. “There are risks and costs to action. But they are far less than the long range risks of comfortable inaction.”

Just be aware the real costs of changing carriers are often hidden and figuring out where they are is usually not simple. To paraphrase French playwright, Jean Anouilh, “Sometimes, saving money just costs too much.”

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